What it contains
A useful engagement letter describes the scope precisely: what the firm takes on, what stays with the client, and what will be billed on top. It sets the fees and how they are calculated, fixed price or hourly rate, along with how they may be revised.
It also sets the deadlines by which the client must hand over documents, because a firm cannot guarantee a tax deadline if it receives the paperwork the day before.
Why it protects both sides
The client knows what they are buying and at what price, which makes two quotes genuinely comparable. The firm knows what it is committing to, which prevents the assignment from quietly expanding.
It is the document you return to when a disagreement arises over an invoice, or over a task each side believed was the other's. It is also the document that governs notice on departure, a point to read before changing accountant.
What to check before signing
Look at what is expressly excluded, how exceptional work is priced, what happens with third-party costs such as filing the annual accounts, and the length of the commitment. Also check the firm's registration in the ITAA register.
The three clauses people read too quickly
Scope described in one line. « Full accounting » means nothing. The list of covered work rarely fits in less than a paragraph, and its absence is the starting point of most disputes.
A fixed price with no reference volume. A monthly price that mentions no number of documents is an estimate in disguise: it will be revised as soon as activity grows, and you will have no figure to point to.
The notice period. This is the clause people discover on the way out. Three months' notice is not unusual, provided you knew about it when signing.
What people often confuse
An engagement letter is not a quote. A quote prices a service; the engagement letter also allocates responsibilities, which matters just as much in a tax audit. A firm that only sends a price without an engagement letter is not meeting its ethical obligation.
Our guide on what an accountant costs covers the questions to ask before signing, and the AccountMap directory lets you compare several firms before it comes to that.