Requirements · Accounting and tax services

What an accounting engagement letter should contain

Last updated 25 October 2026 · 3 sources listed · Reading time about 4 minutes

Short answer

An engagement letter should state who the client is, exactly which services are included and excluded, what each party must provide and by when, how fees and extras are charged, how liability is limited, how records are handled, and how either side ends the relationship. Read exclusions and responsibilities most closely: that is where disputes originate.

Who this is for: A business owner about to sign, or asked to re-sign, an engagement letter with an accountant, bookkeeper or auditor and unsure what to look for.

What to evaluate

Parties and entities covered
If the letter names a company but you also need your personal return or a related entity handled, that work may be outside the engagement.
How to check: Confirm each legal entity and individual covered is listed by name.
Defined services and deliverables
Phrases such as accounting support are too loose to enforce. Specific deliverables tell you what you are paying for and when.
How to check: Look for a list such as year-end accounts, a named tax return, payroll processing, with delivery timings.
Exclusions
Items commonly excluded include dealing with tax authority enquiries, advice on transactions, bookkeeping repair and investigations.
How to check: Read the exclusion section line by line and ask what each would cost or involve if needed.
Client responsibilities
The firm generally relies on information you supply, and the letter often places responsibility for accuracy and completeness on you.
How to check: Note information deadlines and whether late delivery changes fees or filing outcomes.
Fee basis and variation
The letter should say how the fee is calculated, billing frequency and the process for agreeing extra work.
How to check: Check for clauses permitting fee changes and whether notice is required.
Liability and dispute terms
Many letters cap liability or select a jurisdiction and dispute process, which affects your recourse.
How to check: Ask what the cap relates to and whether it is permitted in your jurisdiction.
Termination and records
Handover obligations, retention periods and any right to withhold papers over unpaid fees determine how easily you can leave.
How to check: Look for notice periods, handover duties and who owns working papers.

Comparison

Common clauses and what to verify
Clause	What it usually does	What to verify
Scope of work	Lists services included for the period	That every filing and report you rely on is named
Third-party reliance	States the firm relies on your records without audit	How errors from missing or inaccurate records are allocated
Limitation of liability	Caps or restricts the firm's exposure	Whether the cap is reasonable relative to risk and legally allowed
Fee variation	Allows adjustment for extra work or inflation	Notice requirements and your right to object
Termination	Sets notice and consequences of ending	Handover of records and treatment of work in progress

Decision worksheet

Rate up to three options against this guide’s own criteria. It runs in your browser and saves only on this device. It is a thinking aid, not a recommendation.

1. Have you checked each criterion?

Parties and entities covered — Confirm each legal entity and individual covered is listed by name.
Defined services and deliverables — Look for a list such as year-end accounts, a named tax return, payroll processing, with delivery timings.
Exclusions — Read the exclusion section line by line and ask what each would cost or involve if needed.
Client responsibilities — Note information deadlines and whether late delivery changes fees or filing outcomes.
Fee basis and variation — Check for clauses permitting fee changes and whether notice is required.
Liability and dispute terms — Ask what the cap relates to and whether it is permitted in your jurisdiction.
Termination and records — Look for notice periods, handover duties and who owns working papers.

0 of 7 criteria checked.

2. Compare options (0 = fails or unknown, 3 = meets it well)

Criterion	Option 1 name	Option 2 name	Option 3 name
Parties and entities covered	Parties and entities covered score for Option A	Parties and entities covered score for Option B	Parties and entities covered score for Option C
Defined services and deliverables	Defined services and deliverables score for Option A	Defined services and deliverables score for Option B	Defined services and deliverables score for Option C
Exclusions	Exclusions score for Option A	Exclusions score for Option B	Exclusions score for Option C
Client responsibilities	Client responsibilities score for Option A	Client responsibilities score for Option B	Client responsibilities score for Option C
Fee basis and variation	Fee basis and variation score for Option A	Fee basis and variation score for Option B	Fee basis and variation score for Option C
Liability and dispute terms	Liability and dispute terms score for Option A	Liability and dispute terms score for Option B	Liability and dispute terms score for Option C
Termination and records	Termination and records score for Option A	Termination and records score for Option B	Termination and records score for Option C
Total (max 21)	0	0	0

Questions to ask before you commit

Can you walk me through the exclusions and give an example of each?
Who is responsible for monitoring and notifying me of filing deadlines?
What happens if the tax authority opens an enquiry into a return you prepared?
Is there a limit on your liability, and what is it linked to?
How are changes to scope agreed, and will I get a written estimate first?
Who owns the working papers, and will I get copies on request?
What notice does either side need to give to end the engagement?
How will you handle my personal data and who has access to it?

Typical trade-offs

Broad scope versus narrow scope

Upside: Broad scope reduces gaps and surprise extras.
Downside: You may pay for services you do not use, and a broad scope can dilute attention on what matters.

Accept the standard terms versus negotiate

Upside: Standard terms are quick and familiar to the firm.
Downside: Terms are drafted to protect the firm; modest changes such as clearer deliverables can materially help you.

Long notice and minimum term versus rolling arrangement

Upside: Commitment can secure better service and stable pricing.
Downside: You may be locked in if service declines.

Common mistakes

Signing without reading the exclusions, then assuming the firm would handle a tax enquiry or a late-filing dispute. Ask for that work to be quoted separately in advance.
Not noticing that the letter covers only the company when you also need personal filings. List every entity.
Ignoring the information-reliance clause and giving incomplete records. Errors stemming from your data are usually your responsibility.
Skipping a review when the firm sends an updated letter. Changed terms apply once you continue the relationship.
Failing to keep a signed copy. You will need it in any dispute.

Sources and further reading

These pages were reachable when we last checked. They informed definitions and rules referred to above; they do not endorse this guide. Where rules differ by country, check the authority for your location.

International Federation of Accountants — IFAC, retrieved 27 October 2026
Institute of Chartered Accountants in England and Wales — ICAEW, retrieved 27 October 2026
AICPA and CIMA — AICPA and CIMA, retrieved 27 October 2026

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