| Engagement Letters |
|
The standards of the Accounting Profession, good business practices, and the insurance companies require the client to sign an engagement letter prior to the CPA providing services for the client. The purpose of the engagement letter is to provide a clear understanding of the services to be provided or not to be provided and to disclose other matters appropriate to the engagement. The goal, of course, is to minimize the potential for misunderstanding. Engagement letters are tailored to the engagement. The following are samples of typical engagement letters to give flavor for what is included in an engagement letter:
Sample Engagement Letter - Individual Income Tax Return Preparation
This letter is to clarify the nature and extent of the more significant implications that underlie this or any accounting engagement.
I will prepare your 2009 and future income tax returns from information you furnish. Tax return preparation may require other tax and accounting services. I will depend on the information you are supplying as being accurate and complete to the best of your knowledge, and I will rely on your representation that you have maintained the documentation required by law to support your expenses for meals, entertainment, travel, gifts, vehicle use, and charitable contributions. I will not verify the information you provide, but I may ask you for clarification of some data. I will furnish you with a questionnaire to guide you in gathering the necessary information.
I will use my judgment in resolving questions where the tax law is unclear, or where there are conflicts in interpreting the law. Unless otherwise instructed by you, I will resolve such questions in your favor whenever possible.
The law provides various penalties that may be imposed when taxpayers understate their tax liability. If you would like information on the amount or circumstances of these penalties, please ask. You should review your income tax returns carefully before you sign and file them, as you have the final responsibility.
Your tax returns may be selected for review by the taxing authorities. Any proposed adjustment by the examining agent is subject to certain rights of appeal. If the government chooses to examine your tax return, I will be available upon request to represent you; I will render additional invoices for the time and expenses incurred.
My fee for tax return preparation services will be based on the amount of time required at prevailing billing rates plus expenses, adjusted for the value of the work performed. Fees for individual income tax return are due at the time I deliver the completed return. Estimated fees for delinquent income tax returns and related Internal Revenue Service Representation are due before work commences. Fees over thirty days past due will incur a late charge of 1-1/2% per month. I may, in my judgment, cease work on an engagement where delinquent fees are outstanding.
If this agrees with your understanding, please sign and return this letter with your tax organizer.
Sample Engagement Letter - Compilation of Financial Statements
This letter is to clarify the nature and extent of the more significant implications that underlie this engagement. Please read this letter carefully because it is important to both of us that you understand what you can and cannot expect from my work. In other words, I want you to know the limitations of the services you have asked me to perform.
I will compile, from your information, the annual balance sheets and related statements of income, retained earnings, and cash flows of XYZ Company, Inc. for the fiscal year ended December 31, 2009. I will not audit or review such financial statements. Consequently, I will not be able to express an opinion or any other form of assurance on the financial statements and will, therefore, disclaim an opinion on them. Moreover, since an audit engagement cannot be relied upon to disclose errors, irregularities, or illegal acts, there is little likelihood of their discovery when, as in this case, no audit has been undertaken. My report on the annual financial statements of XYZ Company, Inc. is expected to read as follows:
I have compiled the accompanying Balance Sheets of XYZ Company, Inc. as of December 31, 2009 and 2008, and the related Statements of Income and Retained Earnings, and Statements of Cash Flows for the years then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements information that is the representation of management. I have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any other form of assurance on them.
I am not independent with respect to XYZ Company, Inc.
This engagement is limited to accounting and tax services and does not include an audit of your financial statements in accordance with generally accepted auditing standards. I therefore ask that you not in any manner refer to this as an audit
As part of my engagement, I may also propose standard, adjusting, or correcting journal entries to your financial statements. Management, however, has final responsibility for reviewing the proposed entries and understanding the nature and impact of the proposed entries to the financial statements.
I will also prepare the Company’s U.S. Corporation Income Tax Return from information you furnish. You, however, are responsible for meeting any foreign country income or other tax filing responsibility. Tax return preparation may require other tax and accounting services. I will depend on the information you are supplying as being accurate and complete to the best of your knowledge, and I will rely on your representation that you have maintained the documentation required by law to support your expenses for meals, entertainment, travel, gifts, vehicle use, and charitable contributions. I will not verify the information you provide, but I may ask you for clarification of some data.
I will use my judgment in resolving questions where the tax law is unclear, or where there are conflicts in interpreting the law. Unless otherwise instructed by you, I will resolve such questions in your favor whenever possible.
The law provides various penalties that may be imposed when taxpayers understate their tax liability. If you would like information on the amount or circumstances of these penalties, please ask. You should review your income tax returns carefully before you sign and file them, as you have the final responsibility.
Your tax returns may be selected for review by the taxing authorities. Any proposed adjustment by the examining agent are subject to certain rights of appeal. If the government chooses to examine your tax return, I will be available upon request to represent you; I will render additional invoices for the time and expenses incurred.
My fee for this engagement will be based on the amount of time required at prevailing billing rates plus expenses, adjusted for the value of the work performed.
Fees are due at the time I deliver the financial statements and tax return to you. Estimated fees for Internal Revenue Service Representation are due before work commences. Fees over thirty days past due will incur a late charge of 1-1/2% per month. I may, in my judgment, cease work on an engagement where delinquent fees are outstanding.
If this letter correctly expresses your understanding of the terms of my engagement, please sign the enclosed copy where indicated and return it to me.