Importance of the engagement letter in hiring an accounting firm
When you hire an accounting firm, it’s very important to describe the duties and responsibilities to the firm in order to maintain the accounting functionality of the business. So, that’s when the role of an engagement letter comes into existence.
What is the engagement letter?
An engagement letter is a signed agreement between a client and an accounting firm. It describes the relationship they need to carry along with the roles and responsibilities of the accounting firm they are to perform. It’s an outline of work, roles and responsibility you allot to the accounting firm.
Need for an Engagement Letter
Before you hire an accounting firm, the foremost thing that you should focus on is to make an engagement letter.
- It states the accounting firm to provide the scope and limitations of the services.
- States the duty the accounting firm will perform in a financial year, from maintaining the books of accounts to prepare financial statements.
- Important in stating financial details like fees paying to the accounting firm for its services.
- It helps in avoiding any error or miscommunication.
[blockquote]Creating an Engagement letter before hiring gives you the opportunity to think about what you can add or what must avoid in order to maintain the performance and the liability of the accounting firm towards your business.[/blockquote]
Things to be included in the Engagement Letter
These three things are an essential part of the engagement letter.
I. Communication Mode:
It is very important to state a communication mode you can utilize while communicating important information to the accounting firm so that you avoid any miscommunication. You can use e-mail for this purpose.
II. Delivery Deadlines:
We can specifically say that this is the core part of the Engagement Letter. One must clearly state the deadlines for submitting the project in the letter which can provide the accounting firm with a clearer view.
III. Information to be communicated to the accounting firm:
An Engagement letter also contains the necessary information that one needs to provide to the accounting firm so that the firm can work accordingly.
The engagement letter delivers nitty-gritty of the business to the accounting firm and thus contains a good amount of weight.