Don’t Give Away Services
Source: RedZone, Play of the Month
The following constitutes the complete article, reprinted with permission from Accountants Advisory Group LLC.
It’s not unusual for CPA firms to encounter circumstances during the course of an engagement that were not contemplated, and therefore, not included in a fixed-fee arrangement. These additional services should be billed on a “Change Order”. We prefer the use of the term “Supplemental Services Agreement” (SSA). The SSA should include the following: A description of the additional work to be performed that is not included in the engagement letter. The reason or cause for the additional services. Estimated time to complete the services and the level of involvement by the client. A mutually agreed upon fee and payment terms. Signatures of the client prior to commencing the additional work. The SSA protects both the client and the CPA firm from any misunderstandings as to the necessity of the additional services and the related fees at the completion of the engagement. It allows both parties to address the issues at the time they surface and to negotiate the fee and an action plan for completion. Providing the additional services without the client signing off on the additional fee will most likely result in write downs once the engagement is billed at the completion of the work. The results of a recent national survey indicated that CPA firms with billings in excess of $10 million were averaging 84% realization rates. It has been our experience that low realization rates can be caused by a combination of a failure to properly price and manage an engagement and not charging for services rendered above and beyond the original scope included in the engagement letter. It is important for the engagement letter to include very specific language as to what services are and are not included in a fixed-fee arrangement. With escalating staff compensation costs and the increased regulations that CPA firm partners face, firms can no longer afford to give away services. Don’t leave the points on the field—put them up on the scoreboard! From RedZone, Play of the Month, Accountants Advisory Group LLC, www.accountantsadvisory.com, March 2008.
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