The topic of engagement letters may instil you with worry because it’s absolutely crucial that you get them right. To ensure you are constantly meeting the highest compliance standards, you should be reviewing your engagement letters regularly, so it becomes an ongoing process.
However, through speaking to numerous accountants and bookkeepers across the UK, I have learnt that many dread updating their client engagement letters and avoid the process as much as they possibly can.
It’s common for an accounting or bookkeeping firm to update their engagement letters in bulk and then forget about them for years.
And I can understand why…
If your engagement letter process is very manual, updating and reissuing these documents consumes a lot of time and resource; both of which are extremely valuable in your industry.
Not only that, but due to the high importance of engagement letters, there is often only one team member that is accountable for (re)issuing them, usually the director or somebody in a senior position.
Consequently, they become the bottleneck in the business and spend far too much time doing admin work instead of focusing on other key areas of the business.
What will you learn?
- An up-to-date engagement letter is just as important for your client, as it is for you
- A new engagement letter must be issued if you carry out a new service or stop a service
- Updated terms & conditions must be communicated with your client
- Regulatory changes can result in an urgent reissue of your engagement letters
- Changes in external rules can affect the validity of your engagement letters
- A solution that auto updates all changes within your engagement letters
Why do you need an up-to-date engagement letter?
An accounting engagement letter is essentially a contract that clearly outlines the responsibilities for both you and your client.
Ensuring the document is robust, clear and up-to-date is paramount to minimise risk and should it occur, protect your business from any legal disputes that would cost you great time, money and stress.
An up-to-date engagement letter is just as important for your client. Clear, relevant documentation shows that you’re being fully transparent and continuously setting clear expectations, strengthening your relationship in the long run.
Despite this, a very common issue arising on Practice Assurance visits is engagement letters not being reissued when they should be, consequently leaving businesses wide open to risk.
When should you update an engagement letter?
To ensure all of your client documents are up-to-date, you should reissue a new engagement letter when the following changes take place:
1. Change in scope of services
The understanding between you and your client regarding the nature and scope of the engagement is crucial.
If you provide a new service to a client, you must reissue an updated engagement letter to ensure there is a consensus from both parties that you will now be responsible for that specific work carried out.
However, if the additional work is covered by the ad hoc and advisory section of the original document, a new engagement letter does not need to be issued.
It’s equally important to reissue an engagement letter if you stop providing a service to your client to clearly state that you no longer take responsibility for the accuracy of the work carried out.
From a risk management perspective, an updated engagement letter is essential in both circumstances to avoid any misunderstanding or ambiguity. Should a dispute arise, you have clear evidence what was agreed at the point of your engagement.
2. Change in your general terms and conditions or to the specific terms of a service you’re providing
If the terms and conditions of your business change, you are expected to notify your clients to ensure you are being fully transparent with them; it is not enough to simply update terms and conditions on your website.
While it’s not always essential to reissue an entire new engagement letter, it’s paramount that the updated terms and conditions have been communicated with your client.
In the event of a dispute, you would be exposed to high levels of risk if there is no clear act of the client accepting the revised terms.
Likewise, if you’re providing a service to a client, and their or your responsibilities around that service change, you must be able to prove that your client is aware of any amendments.
3. Change in governing body regulations
A change within your professional body regulation can result in the urgent requirement to reissue your client engagement letter, depending on the severity of the change.
You need to understand the impact on the terms and conditions within your engagement letter, so you can communicate with your client whether an updated document is required to protect both parties.
4. Change in any external rules
This refers to any changes outside of your professional body regulations. An example of a change in an external rule would be the recent GDPR change, as a result of the UK leaving the EU.
With the change coming into effect in 2021, you are now required to clarify in your Privacy Notice whether you transfer client data outside of the UK. Where data is transferred outside of the UK, a list of those countries must be provided in your Privacy Notice.
There is an expectation that you are aware of any changes in external rules and update your engagement letters accordingly.
Is there a software that can write engagement letters for accountants?
With the compliance landscape constantly evolving, it can be overwhelming to keep up with all changes and know when to update your client engagement letters.
OverSuite is a smart engagement letter solution that allows you to build a library of engagement letters in 10 minutes with a simple set-up guide.
Compliance expert guidance has been built into each letter, and there are over 60 service schedules to choose from.
Our engagement letters are robust yet clear, so all parties understand the agreement in place, minimising your exposure to risk.
All changes in governing body regulations and external rules (should there be any) are auto updated every quarter within your OverSuite engagement letters. These changes are communicated, and you are informed whether a new engagement letter needs to be reissued immediately.
Reissuing your engagement letters with OverSuite is simple, it only takes a few minutes, and the engagement letters can be signed instantly and digitally.
Get Your Suite of Smart Engagement Letters with OverSuite
Meet the highest levels of risk and compliance standards with our suite of Smart Engagement Letters that evolve with regulatory changes & are auto-updated for you.
Image used from photographer Andrea Piacquadio
