Engagement Letters

Engagement letters are a great tool to enhance and clarify expectations between CPA’s and their clients. When engagement letters are used consistently, they can help build client relationships. CPA’s can also use them as a marketing tool, letting the client know what services they are being offered, and identifying supplemental services that may be beneficial to them. Such as discussing in the engagement letter for a tax client that tax planning services could be offered with a new signed engagement letter.

Professional Standards

While the AICPA does not require engagement letters, the standards do discuss establishing an understanding with the client, and it is preferable that this communication be written. Protection from Legal Liability Engagement letters can be a good basis of defense in the event of a malpractice claim. Also, if the intended users are identified in the engagement letter, it can limit those who can sue the CPA for use of the work product in some states.

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Our firm does not happen to be consistent with getting signed engagement letters before services are performed.

Recently, we did some valuation services for one of our larger clients that was quite intensive and took a good deal of time. The client received the information and then the bill. He called and told the CPA that was working with him that he did not ask for the valuation services to be done that he was just asking about such services. This is interesting, since the client forwarded the information necessary to complete the services.

However, such confusion could have been avoided had a signed engagement letter been in place for the valuation services. I also really like the idea of using them as a marketing tool.

Engagement Letters: Why Use One? Retrieved from http://www. proaccess1. com/downloads/CPA_Engagement_Letters_Why. pdf What is audit risk? Audit risk equals inherent risk times control risk multiplied by detection risk. Inherent and control risk cannot be controlled by the auditor as they are a function of the client and its internal control environment. Detection risk is however a function of the effectiveness of the audit procedures performed. Misstatements that make it through the client’s controls and through the audit would be considered the audit risk.