Managing your risk with engagement letters

An engagement letter is an important written agreement that describes the business relationship and the types of services agreed upon by a client and a professional firm. The letter details the scope of the agreement, terms and costs and sets expectations for both sides of the arrangement.

In this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, Association of International Certified Professional Accountants, representing AICPA & CIMA, chats with Deb Rood, CPA, MST, Risk Control Consulting Director — CNA, about the importance of engagement letters and determines why a well-drafted engagement letter can help prevent a misunderstanding with a client from turning into an expensive liability claim.

What you’ll learn in this episode

• The necessity of engagement letters (0.57)
• Liability claims and engagement letters — the statistics (2.24)
• Specific understandings and agreements that should be included in an engagement letter (5.35)
• Timing and fee topics in engagement letters (7.32)
• Electronic engagement letters (10.44)
• Tips for those getting started on using engagement letters or for those that want to improve their processes (11.30)
• Resources, including those related to client terminations (13.44)
• A page from Deb’s travel journal (16.45)

 AICPA resources

• 2022 engagement letters — The 2022 engagement letters are available for Tax Section members to download. These resources are part of the Annual Tax Compliance Kit — a library of engagement letters, client organizers, tax return checklists and practice guides to help you get ready for the next tax season.
• AICPA Member Insurance Program education and resources — Brought to you by AON, on this hub you can find articles, tips, calculators, checklists, webinars, letter samples and downloadable materials.
• Advice for when it's time to say goodbye (to clients) — On this Tax Section Odyssey episode, professionals discuss how ending a client relationship is a weighty decision for any CPA. Whatever the reasons are for the termination, disengage cleanly and timely.
• Rogue behavior: Risks your CPA firm should avoid — Deb Rood shares claim experience of the AICPA Professional Liability Insurance Program that demonstrates that rogue behavior, especially at the partner level, can lead to professional liability claims.
• Use of e-signatures for engagement documentation — The question of whether a client's electronic signature on engagement letters, management representation letters and other documents is acceptable is examined. 
• Surviving tax season: Checklists to manage your risk — Access these interactive checklists to help you navigate tax season and manage your professional liability risk.
• Client Evaluation Tool — Use this tool to identify your firm’s better clients who deserve more of your time and attention.
• Client Termination Practitioner Checklist and Notification Letter — Terminate a client relationship by following these helpful practice management reminders and then formally communicate the termination to your client.
• Practice Management & Professional Standards — Browse tax practice management resources and guidance to help keep your firm performing at the optimal level.

Keep your finger on the pulse of the dynamic and evolving tax landscape with insights from tax thought leaders in the AICPA Tax Section. The Tax Section Odyssey podcast includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices.

This resource is part of the robust tax resource library available from the AICPA Tax Section. The Tax Section is your go-to home base for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to The Tax Adviser.