As the New Year approaches so does Tax Season for our CPA clients. One of the consistent issues that arise for CPA’s at this time of the year is the question of utilizing engagement letters for tax clients. Some CPA’s feel that requesting their tax clients to sign engagement letters is burdensome and may appear ominous to some clients.
From a Risk Management standpoint, it is our recommendation that engagement letters should be utilized for all services, including tax work. Tax services still account for the highest frequency of professional liability claims against accountants. And, an engagement letter is can be an important element of defense in the event of a claim against you.
Of course, the engagement letter should be in proportion to the services provided, but it is more than simply a fee agreement. An engagement letter will identify not only the services that you are providing, but sometimes more importantly the services you are not providing (“We will not audit or otherwise verify the data you submit.”). Keep in mind, this may be an opportunity for you to market and advise your clients of additional services you can be providing them.
In the worst case, consider using a “negative engagement letter” for 1040 clients. A Negative Engagement letter is one that includes wording that indicates even if the client does not sign the letter, certain action taken by the client (submission of tax returns) will be deemed as acceptance of the engagement letter terms.
For more information on engagement letters including sample letters, and more on negative engagement letters visit our dedicated website, www.cpaengagementletters.com
