The question of why I started Engage is really three questions: what is the problem; why Engage solves the problem; and why I decided to start the company and build the app.

This is the first of a six-part series. Part I, below, talks about why accountants should use engagement letters and why failing to use them is a problem.

Part I: The Problem

There are many reasons why using an engagement letter is valuable.  On one hand, regularly using letters can strengthen the accountant-client relationship, increase client loyalty, and increase client retention from one year to the next.  They are also a great way to explain the CPA’s value and to promote additional services.

On the other hand, an engagement letter is essential to resolving client disputes.  For example:

Scope of services. The highest compliment a CPA can earn is that of Trusted Advisor.  Frequently, client complaints are but-you-didn’t-tell-me about some rule or requirement because the client believes that the CPA is taking care of all the client’s affairs, whether the CPA is or not.  A written agreement will communicate the terms of service to the client and will reduce miscommunication, especially about the CPA’s scope of services.

Fee disputes. Clients feel tricked and betrayed if they get a bill for services that is much higher than they expected. A client who had tax returns prepared by H&R Block in past, for example, may be surprised by the cost of a CPA.  The engagement letter can explain the fees and the CPA’s billing practices at the beginning of the engagement.  It can also explain the value of the CPA’s services.

Collections. A slow paying or late paying client may still be a good client.  Or they may be resentful about the bill or otherwise disgruntled about the service. Even in these cases, however, the CPA should expect to be paid promptly. An engagement letter spells out the accountant’s terms and expectations about payment and what happens if the client can’t or won’t pay the bill on time.

Advance fees. Most fee disputes and collections problems can be avoided by requiring at least some of the fee for services to be paid upfront, either as an earned fixed fee or as an advance fee deposit as security for services in the future.  This requirement, spelled out in an engagement letter, allows the CPA to be transparent about pricing and sets client expectations from the very beginning.

Finally, engagement letters are the best way to comply with professional standards for accountants and the Treasury Department regulations for tax preparers. They also ensure compliance for those engagements when a written agreement is required, like attestation and some financial statement services.

So why don’t accountants use engagement letters?  For most people, getting a signed engagement letter from the client is tedious, non-billable time and may take several weeks.

A CPA may also think that if an engagement letter solves client disputes, then the answer isn’t to use engagement letters; the answer is to avoid client disputes all together.  This means being professional, competent and technically proficient in your practice, as well as keeping your clients happy with great service.

But what if the client is still not happy? What if there is a misunderstanding, or the client has an unreasonable complaint?  What if the CPA is in the right?

Many times the CPA will concede the dispute to ‘keep the client happy.’  This may mean additional, unnecessary and non-billable work to solve the perceived problem, or can result in the CPA writing off fees to which they are otherwise entitled.  In either case, the CPA is losing money to satisfy a client’s demand – money that could have been saved with the right engagement letter.


Next: Using Engagement Letters in my Practice

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