Looks good to me Dennis. Perhaps I'll try it on my accountant. :-)
Philip Woodgate
· 3 years ago
Many firms use standard engagement letters such as can be found at http://www.icaew.co.uk/library/index.cfm?AUB=TB... and these act as a service contract. Your points on managing client expectations with the engagement letter are valid. Wouldn't it be good if these standard letters were updated to take account of your points yet are still a proper legal document that is fair to both parties. Is it possible? Or has society moved to a point where all companies need watertight contracts to protect them from some really stupid and unfair actions? It's not just accountants this impacts I've seen some pretty complex IT service contracts in my time.
Bob Harper
· 3 years ago
I agree. Is this any better?
As your accountants you have quality assurance because the work we do for you is governed by operating standards handed down to us from our governing body.
Amongst other things these require us to be completely transparent and to help you understand the responsibilities we are allowed to take on and those that remain with you.
This is important for you because under law we can not accept and you can not delgate full responsibility of your tax affairs. Many people are not aware of this and this misunderstanding of roles can cause problems. This letter is designed to help you not fall into that trap.
[Text for client who keep books] Your accounts are prepared using processes and systems develeoped to ensure the work is completed to a high standard and in a timely fashion. Because the final accounts are based on the underlying records and information different processes are used for different types of bookkeeping.
When your books “balance†then samples and tests are carried out to hightlight mistakes. This is done to protect you from the Revenue in the event of an investigation. It is not practical to look at every entry and tests indicate if the bookkeeping is a fair reflection of your trading activities.
The tests are not designed to actively look for mistakes but if we find some, then it is better for us to discuss with you the nature of those mistakes rather than the tax office. We will correct the mistakes for you and if you better understand why things have gone wrong you can then prevent them in the future. As part of our standard servivce we will help you by making suggestions and recommendation on ways in which you can receive a better service that will help prevent mistakes before they become problematic. [end text]
[Text for clients who don’t keep books] If you do not do bookkeeping the accounts can be constructed from the prime records you supply. Your accounts will be prepared using a variety of techniques and represent our best efforts to classify income and expenditure. During preparation, it is likely to come across items that will require your clarification because formal bookkeeping is not available for reference. Any items will be discussed with you to ensure the final accounts are a fair reflection of your trading activities.
If you would like we can explain how to bookkeeping which will allow you have a better undertanding of your finances and keep the number of questions to a minimumy. This could also result in you receiving a better service from us, based on periodic monitoring of your business financial position. [end text]
Dennis Howlett
· 3 years ago
Philip: I think there's a world of a difference between the SMB relationship and that of the large audit client. SMBs want things to be simple and understandable but with enough gravitas that they recognise the document as a contractual arrangement. If we descend into legalese then I feel we're erecting a barrier that's unnecessary. We have to ask ourselves: who are we protecting and why?
Bob's edit looks great to me. I like the reference to transparency and the improved explanation as to the why. Maybe non-accountants would care to comment?
David Tebbutt
· 3 years ago
FYI, I have an 11-page document for my (minute) software company headed "Limited Companies: Total Exemption".
Mark Lee
· 3 years ago
I understand exactly where you are coming from Dennis and agree with the sentiment and ambition.
Last year I chaired a working party that comprised members of all the main professional bodies whose members do tax work and/or give tax advice to their clients. The original intention was to produce updated draft engagement letters.
My ambition was to move away from the old style ever-longer letters and instead to draft guidance as to what shorter client friendly 21st century engagement letters need to contain. Yes we would draft suggested paras for members to pick and choose from.
I also insisted that we should produce a sample letter that would be suitable for the majority of smaller clients of most smaller practitioners. I believed it was critical for our work to be seen as a service to our members and not an administrative chore. That we should help them to see how 'good' letters could help reinforce relationships with clients as well as provide them with legal protection (where appropriate) in the event of disputes.
The fist suggestion - of going back to basics was anathema to on or two of the 'old hands' who had been religiously updating the old drafts year after year. I was also warned that the tax letters had to be drafted in the same style as the accounting bodies general engagement letters. I argued to the contrary that we (tax practitioners) should try to lead the way and set the standard by which other engagement letters would then be judged.
I'm pleased to say that my view prevailed but sad to say that the new style letters and guidance have yet to see the light of day. I'm told that the various bodies are still working on the details and I remain hopeful that the principles established by my working party will still be apparent when the new letters and guidance is published - hopefully before the end of the year.
At this stage all I can say is 'watch this space'!
Dennis Howlett
· 3 years ago
Mark - there's nothing stopping individual firms from going ahead is there? I don't see anything in ICAEW regs that mandates a form of words.
As I've said many times before, this kind of thing lies at the heart of relationship. If you're innovative, you see that, If you're part of the entitlement society, you hate it. No grey areas.
Mark Lee
· 3 years ago
ICAEW (and the other bodies so far as I know) merely recommend that members issue letters setting out the services to be provided and the terms under which they are being provided.
It seems that previous guidance has been misunderstood by some as to require that the draft letters included in the guidance had to be used by everyone. This was never the intent but some members apparently found it easier than crafting their own. Personally I was embarrassed by the lack of user friendliness of the draft letters - hence the reason I wanted to be part of the solution - see my earlier comment above.
All Comments
As your accountants you have quality assurance because the work we do for you is governed by operating standards handed down to us from our governing body.
Amongst other things these require us to be completely transparent and to help you understand the responsibilities we are allowed to take on and those that remain with you.
This is important for you because under law we can not accept and you can not delgate full responsibility of your tax affairs. Many people are not aware of this and this misunderstanding of roles can cause problems. This letter is designed to help you not fall into that trap.
[Text for client who keep books]
Your accounts are prepared using processes and systems develeoped to ensure the work is completed to a high standard and in a timely fashion. Because the final accounts are based on the underlying records and information different processes are used for different types of bookkeeping.
When your books “balance†then samples and tests are carried out to hightlight mistakes. This is done to protect you from the Revenue in the event of an investigation. It is not practical to look at every entry and tests indicate if the bookkeeping is a fair reflection of your trading activities.
The tests are not designed to actively look for mistakes but if we find some, then it is better for us to discuss with you the nature of those mistakes rather than the tax office. We will correct the mistakes for you and if you better understand why things have gone wrong you can then prevent them in the future. As part of our standard servivce we will help you by making suggestions and recommendation on ways in which you can receive a better service that will help prevent mistakes before they become problematic.
[end text]
[Text for clients who don’t keep books]
If you do not do bookkeeping the accounts can be constructed from the prime records you supply. Your accounts will be prepared using a variety of techniques and represent our best efforts to classify income and expenditure. During preparation, it is likely to come across items that will require your clarification because formal bookkeeping is not available for reference. Any items will be discussed with you to ensure the final accounts are a fair reflection of your trading activities.
If you would like we can explain how to bookkeeping which will allow you have a better undertanding of your finances and keep the number of questions to a minimumy. This could also result in you receiving a better service from us, based on periodic monitoring of your business financial position.
[end text]
Bob's edit looks great to me. I like the reference to transparency and the improved explanation as to the why. Maybe non-accountants would care to comment?
Last year I chaired a working party that comprised members of all the main professional bodies whose members do tax work and/or give tax advice to their clients. The original intention was to produce updated draft engagement letters.
My ambition was to move away from the old style ever-longer letters and instead to draft guidance as to what shorter client friendly 21st century engagement letters need to contain. Yes we would draft suggested paras for members to pick and choose from.
I also insisted that we should produce a sample letter that would be suitable for the majority of smaller clients of most smaller practitioners. I believed it was critical for our work to be seen as a service to our members and not an administrative chore. That we should help them to see how 'good' letters could help reinforce relationships with clients as well as provide them with legal protection (where appropriate) in the event of disputes.
The fist suggestion - of going back to basics was anathema to on or two of the 'old hands' who had been religiously updating the old drafts year after year. I was also warned that the tax letters had to be drafted in the same style as the accounting bodies general engagement letters. I argued to the contrary that we (tax practitioners) should try to lead the way and set the standard by which other engagement letters would then be judged.
I'm pleased to say that my view prevailed but sad to say that the new style letters and guidance have yet to see the light of day. I'm told that the various bodies are still working on the details and I remain hopeful that the principles established by my working party will still be apparent when the new letters and guidance is published - hopefully before the end of the year.
At this stage all I can say is 'watch this space'!
As I've said many times before, this kind of thing lies at the heart of relationship. If you're innovative, you see that, If you're part of the entitlement society, you hate it. No grey areas.
It seems that previous guidance has been misunderstood by some as to require that the draft letters included in the guidance had to be used by everyone. This was never the intent but some members apparently found it easier than crafting their own. Personally I was embarrassed by the lack of user friendliness of the draft letters - hence the reason I wanted to be part of the solution - see my earlier comment above.