Use Client Service Agreements Instead of Engagement Letters

Source: Innovative Practice Management

Following are excerpts from the referenced blog (below), reproduced with permission.

The engagement letter does nothing to inform the client of its obligations other than to pay, or what the accounting firm’s responsibilities or requirements are. It is a legal letter. It is not designed to communicate, but rather to provide a defensible legal position. The accounting firm takes the risk of ineffective engagement performance, but does not protect itself from ineffective client performance. (Michelle Golden, a national marketing and practice management consultant to service firms, referred to this process as ‘bill and duck.’) Even when an engagement letter defines the engagement, it is usually “contractually,” but not “operationally” effective.

To avoid these problems turn the engagement letter into a bilateral client service agreement, one that is developed jointly by the client and the accounting firm (Engagement letters are typically unilateral). When the client is party to the development of the agreement, it is more likely to be committed to it and responsible for its performance pursuant to it.

The CSA:

• Explains the engagement process.
• Provides the client with an opportunity to educate the audit team so that it doesn’t inadvertently or unnecessarily interfere with workflow.
• Covers timing, responsibilities of the parties, and additional cost for missed deadlines or nonperformance of responsibilities by the client.
• Provides a detailed payment schedule.
• Covers the service guarantee by the accounting firm.

For the complete blog entry, click here and read the November 2, 2008, entry “Client Service Agreements—Low Cost, Big Returns.”

From Innovative Practice Management, the blog of Mark Bailey Co., http://www.markbaileyco.com/blog/, November 3, 2008.