When should you reissue an accounting engagement letter?

*This article has been developed with the UK market in mind. If your accounting firm isn’t UK based, please consider how any advice mentioned would translate to your country’s market. 

Engagement letters are a worry for many accountants and bookkeepers because it’s crucial you get them right. To ensure you’re meeting the highest compliance standards, you should be reviewing your engagement letters regularly – it’s an ongoing process. 

However, through speaking to numerous accountants and bookkeepers across the UK, I’ve learnt that many dread updating their client engagement letters, avoiding the process as much as they possibly can. 

It’s common for a firm to update their engagement letters in bulk, then forget about them for years. It’s understandable if your engagement letter process is very manual, updating and reissuing these documents consumes a lot of time and resource. 

Not only that, but due to the high importance of engagement letters, there’s often only one team member accountable for (re)issuing them, and they’re usually in a senior position. 

Consequently, they become the bottleneck and spend far too much time doing admin work instead of focusing on other key areas of the business. 

What you’ll learn: 

• The importance of an up-to-date engagement letter  

• When a new engagement letter must be issued  

• How to communicate updated terms & conditions with your client 

• What impact regulatory changes have on your engagement letters 

• The validity of your engagement letters in light of changes in external rules  

• A solution that auto updates all changes within your engagement letters 

Why do you need an up-to-date engagement letter? 

An accounting engagement letter is essentially a contract that clearly outlines the responsibilities for both you and your client. 

Ensuring the document is robust, clear and up to date is paramount to minimise risk and, should it occur, protect your business from any legal disputes that would cost you great time, money and stress. 

An up-to-date engagement letter is just as important for your client. Clear, relevant documentation shows that you’re being fully transparent and continuously setting clear expectations, strengthening your relationship in the long run. 

Despite this, a very common issue arising on Practice Assurance visits is engagement letters not being reissued when they should be, consequently leaving businesses wide open to risk. 

When should you update an engagement letter? 

To ensure all your client documents are up to date, you should reissue a new engagement letter when the following changes take place:

1. Change in scope of services

The understanding between you and your client regarding the nature and scope of the engagement is crucial. 

If you provide a new service to a client, you must reissue an updated engagement letter to ensure there’s a consensus from both parties that you’ll now be responsible for specific work carried out.  

However, if the additional work is covered by the ad hoc and advisory section of the original document, a new engagement letter does not need to be issued.  

It’s equally important to reissue an engagement letter if you stop providing a service to your client to clearly state you no longer take responsibility for the accuracy of the work carried out. 

From a risk management perspective, an updated engagement letter is essential in both circumstances to avoid any misunderstanding or ambiguity. Should a dispute arise, you have clear evidence of what was agreed at the point of your engagement. 

2. Change in your general terms and conditions or to the specific terms of a service you’re providing

If the terms and conditions of your business change, you’re expected to notify your clients to ensure you’re being fully transparent with them; it is not enough to simply update terms and conditions on your website. 

While it’s not always essential to reissue an entire new engagement letter, it’s paramount that the updated terms and conditions have been communicated with your client. 

In the event of a dispute, you would be exposed to high levels of risk if there is no clear act of the client accepting the revised terms.  

Likewise, if you’re providing a service to a client, and their or your responsibilities around that service change, you must be able to prove that your client is aware of any amendments. 

3. Change in governing body regulations

A change within your professional body regulation can result in the urgent requirement to reissue your client engagement letter, depending on the severity of the change. 

You need to understand the impact on the terms and conditions within your engagement letter, so you can communicate with your client whether an updated document is required to protect both parties.  

4. Change in any external rules

This refers to any changes outside of your professional body regulations.  

An example of a change in an external rule would be the GDPR change, as a result of the UK leaving the EU. With that change in effect since 2021, you’re now required to clarify in your Privacy Notice whether you transfer client data outside of the UK. Where data is transferred outside of the UK, a list of those countries must be provided in your Privacy Notice. 

There’s an expectation that you’re aware of any changes in external rules and update your engagement letters accordingly. 

Is there a software that can write engagement letters for accountants? 

With the compliance constantly evolving, it can be overwhelming to keep up with changes and know when to update your client engagement letters. 

OverSuite is a smart engagement letter software that allows you to build a library of engagement letters in 10 minutes with a simple set-up guide. 

Expert compliance guidance has been built into each letter, with over 60 service schedules to choose from. 

Your exposure to risk is minimised with engagement letters that are robust yet clear, so all parties understand the agreement in place. 

All changes in governing body regulations and external rules (should there be any) are auto updated every quarter within OverSuite. Changes are communicated quarterly, and you’re informed whether a new engagement letter needs to be reissued immediately. 

Reissuing your engagement letters with OverSuite is simple, it takes minutes, and they can be signed digitally in an instant.