4 ways to update engagement letter processes

Review prior year engagement letters and update, as needed. Sources of sample engagement letters include your professional liability insurer, the AICPA, and paid providers. CNA’s sample engagement letters are available to policyholders in the Policyholder Resource Center.

Review firm policy on issuing engagement letters. While obtaining signed engagement letters is always the preferred risk management practice, unilateral engagement letters sent with tax organizers may be more practical for low risk individual tax return preparation engagements. A unilateral engagement letter requires signature only by the CPA firm. The client indicates its acceptance with the firm’s terms and conditions by returning the organizer and providing other tax information to the CPA firm. A sample unilateral engagement letter is included in the Policyholder Resource Center.

Emphasize engagement letter usage for all tax services, including tax planning, tax consulting and tax audit representation services. In 2018, approximately 34% of the tax claims asserted against CPAs in the AICPA Professional Liability Insurance Program failed to utilize an engagement letter related to the service. While CPAs may be diligent about obtaining engagement letters for compliance services, experience demonstrates they are less conscientious when providing higher risk tax services such as audit representation, planning and consulting. A single engagement letter may not suffice for a client that engages the CPA firm for multiple services.

Inform clients that the firm will not begin preparing tax returns until the retainer fee is paid, if requested, and a signed engagement letter is received, or in those cases where a unilateral engagement letter is sent, the completed and signed tax organizer is received.

what to do now … before the big rush

4 ways to update engagement letter processes