Engagement letters

Software. Marketing. Training. Running your business.
#1
Posts:
300
Joined:
26-Apr-2022 10:00pm
Location:
Los Angeles
Currently, we have our clients sign an engagement letter every tax season.

Is that really necessary? seems like a lot of unnecessary signatures.

Can't you just have an engagement letter that a client just signs the first time they do business with you?


Thanks for any advice!
 

#2
CathysTaxes  
Moderator
Posts:
3557
Joined:
21-Apr-2014 9:41am
Location:
Suburb of Chicago
I certainly would prefer that.
Cathy
CathysTaxes
 

#3
smtcpa  
Posts:
515
Joined:
28-Jul-2014 5:16am
Location:
Richmond, VA
I've read opinions from attorneys and my insurance provider that a new signature is suggested every year.
 

#4
JAD  
Posts:
4022
Joined:
21-Apr-2014 8:58am
Location:
California
My clients sign once, at the beginning of the relationship. My attorney works at a big firm, and I signed once, long ago.
 

#5
Posts:
300
Joined:
26-Apr-2022 10:00pm
Location:
Los Angeles
Cool, thanks for the responses.

I might check with our insurance provider see if the freak out.
 

#6
Posts:
8151
Joined:
4-Mar-2018 9:03pm
Location:
The Office
I would think most E&Os prefer a defined scope and end date in engagement letters. I don't know how it's possible to do that with an "open" engagement letter.
 

#7
smtcpa  
Posts:
515
Joined:
28-Jul-2014 5:16am
Location:
Richmond, VA
Here's what Camico told me:

CAMICO strongly recommends annual engagement letters for all engagements. Evergreen letters are expedient and efficient, but fraught with risk. The risks come primarily from two areas: (1) understanding of the scope and limits of the engagement and (2) statute of limitations.

Parties to the engagement are less familiar with the terms, scope and limits of their arrangement the further they are from the date it was signed. That lack of familiarity/recollection entertains the argument that they had forgotten or didn’t understand the nature of the original terms and courts have been known to accommodate those arguments and broaden the responsibilities of CPAs to include the expanded expectations clients allege were believed to have been present or intended. By refreshing the engagement letter annually reduces this risk.

The issue related to the statute of limitations is that courts have ruled that if the statute of limitations begins to toll once the engagement is concluded, the CPA firm is exposed for an indeterminate period of time as evergreen arrangements don’t conclude until one of the parties terminates or alters the relationship.
 

#8
Posts:
6036
Joined:
22-Apr-2014 3:06pm
Location:
WA State
The larger firm I worked for had perpetual ELs for individuals and annual ELs for business entities about 8yrs ago. After three years of that, they went to annual for everyone.
We can all make the argument that clients don't read them (blah, blah, blah), but their lack of due diligence to the engagement shouldn't influence a looser approach for us as professionals.

I'm looking to streamline my send/receive process around ELs this year. Having paper travel back and forth is much too inefficient.
~Captcook
 

#9
Posts:
8151
Joined:
4-Mar-2018 9:03pm
Location:
The Office
All of mine are done online via esignature. That works fine for me, and most of my clients love it, but I could see it being a problem for older clients who are not comfortable online.
 

#10
Posts:
522
Joined:
24-Jun-2016 4:01pm
Location:
Working Remotely
 

#11
Posts:
2611
Joined:
24-Jan-2019 2:16pm
Location:
North Shore, Oahu
For income tax-only clients, we have a system where we feel like we're getting a decent amount of protection at basically a zero time cost...

We provide a very simple online quick client organizer that asks about things like address changes and such. It is a logic-based Google form.

At the end of it, a link to our privacy policy and client service agreement are provided and the client must check a box that he or she certifies that they have read it and that they agree to all terms.

We also have them check a box that authorizes us to file an extension on their behalf if the tax return will not be filed on time.


We also have our agreement customized in our tax software (Drake) so that it prints with the return PDF and both clients electronically sign it along with the 8879.

Finally, we require that they both sign a direct deposit verification/agreement (also prints with the return PDF).

Our online "quick client organizer" has saved us a lot of time and clients can complete them on their phones so it's not like pulling teeth. I would definitely recommend it.
 

#12
Posts:
2887
Joined:
21-May-2018 7:50am
Location:
Northern MI and Coastal SC
I obtain them every single year per my E&O. It isn't difficult, and I guarantee you less than 1% actually read the damn things. I'm trying to figure out how i can shorten mine to under 10 pages, though. I basically want to say "YOU are responsible for everything except errors my company may make. Agree? GREAT! We are now engaged in a professional relationship."
 

#13
Posts:
300
Joined:
26-Apr-2022 10:00pm
Location:
Los Angeles
ItDepends wrote:For income tax-only clients, we have a system where we feel like we're getting a decent amount of protection at basically a zero time cost...

We provide a very simple online quick client organizer that asks about things like address changes and such. It is a logic-based Google form.

At the end of it, a link to our privacy policy and client service agreement are provided and the client must check a box that he or she certifies that they have read it and that they agree to all terms.

We also have them check a box that authorizes us to file an extension on their behalf if the tax return will not be filed on time.


We also have our agreement customized in our tax software (Drake) so that it prints with the return PDF and both clients electronically sign it along with the 8879.

Finally, we require that they both sign a direct deposit verification/agreement (also prints with the return PDF).

Our online "quick client organizer" has saved us a lot of time and clients can complete them on their phones so it's not like pulling teeth. I would definitely recommend it.



Thanks, great advice!
 

#14
Posts:
300
Joined:
26-Apr-2022 10:00pm
Location:
Los Angeles
CornerstoneCPA wrote:I obtain them every single year per my E&O. It isn't difficult, and I guarantee you less than 1% actually read the damn things. I'm trying to figure out how i can shorten mine to under 10 pages, though. I basically want to say "YOU are responsible for everything except errors my company may make. Agree? GREAT! We are now engaged in a professional relationship."


:lol:
 

#15
CathysTaxes  
Moderator
Posts:
3557
Joined:
21-Apr-2014 9:41am
Location:
Suburb of Chicago
I pretty much have the engagement letter signed with the 8879. I would have to fight tooth and nail to get it before. New clients are great or new POAs of my elderly clients because they don't know what's up. The older clients seem to enjoy complaining about everything I ask for.
Cathy
CathysTaxes
 

#16
Posts:
300
Joined:
26-Apr-2022 10:00pm
Location:
Los Angeles
CathysTaxes wrote:I pretty much have the engagement letter signed with the 8879. I would have to fight tooth and nail to get it before. New clients are great or new POAs of my elderly clients because they don't know what's up. The older clients seem to enjoy complaining about everything I ask for.


Yeah, I hear that.

Also, because you get to "train" the new clients, whereas the older clients are often inherited.
 

#17
Beagle  
Posts:
189
Joined:
16-Jan-2020 3:15pm
Location:
Freelander
Law firm I work with includes an Engagement Letter right after the cover page of the tax return. The letter says that by signing the 8879, they agree to the engagement letter. Otherwise they just have a signature once when the relationship begins.
 

#18
Posts:
8151
Joined:
4-Mar-2018 9:03pm
Location:
The Office
Beagle wrote:Law firm I work with includes an Engagement Letter right after the cover page of the tax return. The letter says that by signing the 8879, they agree to the engagement letter.


I can't believe a law firm would operate like that. Ask the client to sign an engagement letter upon delivery of the finalized tax return? :) The client has nearly all of the negotiating leverage at that point. What if they refuse to sign?
 

#19
MilesR  
Posts:
723
Joined:
7-Dec-2021 11:10pm
Location:
California
Another important reason for engagement letters is in case the client refuses to pay for your services and you send them to collections. We had a client a couple years ago who refused to pay and we sent him to collections. The collections agency made sure to get a copy of the engagement letter and said it was pretty critical in holding the client's feet to the fire to get them to pay. Without the letter we wouldn't have as much "proof" that they engaged our services and actually owed us a fee.
 

#20
Posts:
8151
Joined:
4-Mar-2018 9:03pm
Location:
The Office
MilesR wrote:We had a client a couple years ago who refused to pay and we sent him to collections. The collections agency made sure to get a copy of the engagement letter and said it was pretty critical in holding the client's feet to the fire to get them to pay. Without the letter we wouldn't have as much "proof" that they engaged our services and actually owed us a fee.


What percentage did you eventually recover, if anything?
 


Return to Business Operations and Development



Who is online

Users browsing this forum: CaptCook, Google Adsense [Bot], Seaside CPA and 24 guests