Engagement letters for accountancy practices

What the professional bodies require

ICAEW's Code of Ethics (in force from 1 July 2026) requires an accountant to give fee quotes or the basis of fees in writing, before the engagement begins or as soon as possible after it starts (paragraph R330.5). The Code says this would normally be in the engagement letter, and where there is no letter a separate document must give the details. The accountant must also explain the basis on which fees are calculated at the earliest opportunity (R330.4) and must not mislead clients about the basis of fees for current or future work (R330.7).

AAT's licence conditions require licensed members to provide letters of engagement and disengagement to all clients, alongside a complaints procedure and professional indemnity insurance at all times.

ACCA publishes engagement letter templates for accounts production and for tax practitioners. Its tax factsheet says a letter should set out, as a minimum, the services to be provided, the client's responsibilities including the duty to give full information, quality of service and complaints procedures, and fee arrangements.

What a letter covers

• Scope. A schedule for each service: accounts, Corporation Tax, Self Assessment, VAT, payroll, bookkeeping. ACCA's accounts production letters come with separate schedules of services and standard terms of business.
• The client's responsibilities: keeping records, giving complete information on time, approving returns before they are filed.
• The fee basis, how scope changes are charged, and when invoices fall due. ACCA's tax factsheet says a fixed fee needs a variation clause so that extra work can be charged.
• Limitation of liability, which sits in the standard terms in ACCA's accounts production templates.
• Complaints. Under the Provision of Services Regulations 2009, regulation 12 a provider must respond to complaints as quickly as possible and make its best efforts to find a satisfactory solution.
• Professional indemnity insurance. Regulation 8 requires a provider that holds professional liability insurance to give the insurer's contact details and the territorial coverage.
• Data protection. An accountant is a controller of the personal data in a client's accounts, as the ICO's guidance explains, and must give privacy information at the time the data is collected (ICO: right to be informed).
• Money laundering checks. The practice must carry out customer due diligence before it establishes the business relationship (HMRC AMLG11300). The letter can say what identification the client must provide.
• Commission. ICAEW's Code (R330.5B) allows a firm to keep a commission received for referring a client only with the client's explicit written consent, which can be given through a clause in the engagement letter with a fair indication of the expected amount (ICAEW Code of Ethics).
• Ending the engagement and handing over records.

Issuing and keeping letters current

1. One letter per client

   ACCA's tax factsheet says a separate letter ought to be issued for each client, for example a husband and wife, a partnership and its partners, or a company and its directors. A group can have one letter sent to the parent if the parent has authority to bind the other companies.

2. Agree it in writing

   The same factsheet says the client should agree the scope and terms in writing, by signing and returning a copy.

3. Send it before work starts

   Fee information must be given before the engagement begins or as soon as possible after it starts (ICAEW Code R330.5).

4. Review it

   ACCA's factsheet recommends reviewing letters for continuing services at least once every three years, and agreeing an updated letter whenever one part changes, such as moving from a time-based fee to a fixed fee.

5. Send a disengagement letter

   AAT licence conditions require disengagement letters as well. Writing when the practice stops acting puts the client on notice of anything outstanding.

Questions