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Accountant / Bookkeeper Engagement Letter

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An accountant/bookkeeper (audit) engagement letter is delivered to a client (usually a business) and signed before the accountant provides any services. The completed document will generally relay all of the accountant’s terms, including the scope of work, fee structure, both parties’ responsibilities, and contract duration. Once signed, both parties will be legally bound to the engagement letter’s terms. This type of contract is often used when an accountant is engaged to prepare a company’s taxes or to audit their financial statements in fulfillment of federal requirements.

Contents

When to Use an Accountant Engagement Letter

Accountants and bookkeepers will send an engagement letter to clients before beginning any work on their behalf. It’s important that an agreement is signed prior to providing services for protection against adverse scenarios in which the client fails to pay the accountant in full or demands services in excess of the original agreement. Even if the accountant has previously worked for the client, they will generally send an engagement letter before any new work is begun.

Common Services

Common tasks for which an accountant/bookkeeper may be engaged include the following:

  • Business auditing
  • Tax preparation
  • Bookkeeping
  • Financial consultation

When auditing a business, an accountant will need to prepare a financial statement for submission to Securities and Exchange Commission (SEC).

Types of Financial Statements

There are three principal types of financial statements that accountants will prepare for companies:

  1. Audited Statement – An independent analysis of a company’s accounts, contracts, procedures, and legal concerns with third-party verification. Public companies are legally required to have their financial statements audited in this manner.
  2. Reviewed Statement – Financial statements are reviewed to determine whether they require any modification. No third-party verification is required, however, the company’s contracts, board minutes, legal records, and other documentation may be analyzed.
  3. Compiled Statement – A company’s financial records are delivered to an accountant who correctly formats them to current standards. The most basic financial statement that requires no verification and is usually used to disclose financial information to investors.

Only a certified public accountant (CPA) can prepare audited and reviewed statements.

Why It’s Important

Sending an engagement letters to clients and having them sign it prior to beginning any work has several benefits:

  • Avoid scope creep – By clearly defining the scope of their services, the accountant can negotiate additional fees for any work beyond the limits of the contract.
  • Limit risk and liability – Having clients sign a legally binding document reduces the risk of bad business relationships and avoids certain liabilities if there is a conflict.
  • Present a professional front – Sending an engagement letter to clients shows the service provider’s professionalism and expectations regarding their work and compensation.
  • Predict income and schedule – With committed contracts, an accountant can reliably plan their schedule and budget in advance.
  • Reduce misunderstandings – The accountant minimizes any misunderstandings by clearly providing all relevant details regarding their services and payment.

What’s Included

An accountant/bookkeeper engagement letter is an official document that needs to include particular information to be legally binding and valid. The below terms, information, and authorization will generally be required.

Contact Information

The names and addresses of the service provider and the client. If the service provider is an accountancy firm, the name of the accountant or bookkeeper working on the contract will also be provided.

Duration

An engagement letter will indicate the duration of the agreement which may be for a set period of time, on an ongoing basis, or another arrangement by which it ends or is renewed. The signing date of the letter be earlier than the agreement start date.

Services

By clearly stating each service provided under the contract in as much detail as possible, the accountant cannot be expected to provide any additional services or finish tasks outside of an established timeline.

Compensation

The letter will need to specify how much the accountant will be paid and when. Compensation may be an hourly rate, flat fee, or a combination rate and flat fee. Payment may be made on a weekly, monthly, quarterly, or yearly basis, on a particular date, or upon completion of their services.

Client Obligations

In addition to the accountant’s services and responsibilities, the contract will also detail the client’s responsibilities, which include providing financial information and taking responsibility for said information’s accuracy.

Signatures

An engagement letter is a legal document and requires both parties’ signatures and signing dates to be valid.

Accountant/Bookkeeper Certification

An accountant/bookkeeper license isn’t required to provide bookkeeping services or prepare a compiled financial statement. However, only licensed CPAs are permitted to prepare audited and reviewed statements, and file reports with the SEC. Accountant certification also isn’t required to prepare taxes except in the following states:

  • California
  • Connecticut
  • Illinois
  • Maryland
  • Nevada
  • New York
  • Oregon

To act as a taxpayer’s representative, the accountant must be a CPA, registered tax agent, or attorney.

Certification requirements vary depending on the jurisdiction, and generally include work experience, training, and a bachelor’s degree. Although a license isn’t required to work as a professional bookkeeper, there are nationally-recognized certifications that may help improve employment opportunities.

The most common accountant and bookkeeper licenses are listed below.

Accountant Licenses

  • Certified Public Accountant (CPA)
  • Certified Management Accountant (CMA)
  • Certified Internal Auditor (CIA)
  • Certified Information Systems Auditor (CISA)

Bookkeeper Licenses

  • Certified Public Bookkeeper (CPB)
  • Certified Bookkeeper (CB)
  • Certified Payroll Specialist (CPS)
  • Certified Quickbooks Advisor (CQA)