Often, professionals in a service industry fail to acquire a written service agreement that lays out the responsibility of both the vendor and the client. Because service providers have an intangible product, it is essential to formalize the understanding of services and obligations.
For example, bookkeeping or accounting professionals or firms may be intrinsically involved with a
client, and because they represent an infrequent service, their clients will
sometimes neglect the invoices or statements received.
Also, coupled with the fact that service provider clients are
often limited companies, means that service professionals need to protect
themselves, and clearly lay out their terms of service, typically with a letter
of engagement. These letters are often found in the accounting sector, and an abridged example of such a letter is below, but it is worth any service provider to have a similar template.
The key pieces of a letter of
engagement are the points dealing with liability for errors, and
the responsibility for each party to provide accurate information to the best
of their ability. However, beyond that, this letter outlines the term of
service, payment arrangements for that service, and guarantee of personal
liability in the matter of an incorporated client.
SAMPLE (ABRIDGED) LETTER OF ENGAGEMENT
October 22, 2013
ABC Company
123 Anytime Place
Cambridge, Ontario
N1N 1N1
Attention: Mr.
Jonathan Smith
Mr. Smith,
This letter
confirms the terms of my appointment as your accountant, and it outlines the
terms, nature and extent of the services I will be providing.
I will compile financial
statements as arranged from time to time from information provided by you. I will not perform an audit or a review
engagement on such information. The
communication that I will normally reference, or attach to each page of your
statements, will be in substantially the following form:
NOTICE TO READER: On
the basis of information provided by management, I have compiled the balance sheet
of ABC Company as of October 22, 2013, and the statements of income and
retained earnings for the year ended. I
have not performed an audit or review engagement in respect of these financial statement
and, accordingly, I express no assurance theron. Readers are cautioned that these statements
may not be appropriate for their purposes.
My engagement should
not be referred to as an audit, since it will not fulfill any statutory,
contractual, or other requirements, nor will it fulfill any requirements for
financial statements that are prepared in accordance with Canadian generally
accepted accounting principles. In view
of the limited nature of my engagement, you may wish to obtain legal advice
regarding any statutory or contractual requirements. The Ontario Business Corporations Act
requires that the company appoint an auditor unless all shareholders annually
agree to waive such appointments. Please
ensure that the necessary shareholders’ resolution waiving appointment of
auditors is approved annually.
You understand and
agree that:
(a) The financial statements are the representations of management, and management is responsible for their accuracy and completeness;
(b) You will supply the accurate and complete information necessary to compile the statements;
(c) If, during the minimal study entailed in my compilation, I learn of any matter that, in my opinion, would cause the financial statements to be misleading if not disclosed, it will be disclosed in the financial statements, or I will be required to withdraw from the engagement.
(d) Each page of the financial statements will be marked “Unaudited – See Notice to Reader” and will either carry my notice to reader or refer the reader to it, and the financial statements must not be circulated without my marking and notice.
(e) Financial statement compilation procedures do not include procedures designed to detect fraud or error -- Management is responsible for the design and implementation of internal controls to prevent and detect fraud and error
(f) I will also prepare the necessary Federal and Provincial income tax returns and supporting schedules, carry out any bookkeeping that is necessary to effect the compilation, and perform such related services as may be agreed upon from time to time.
(g) My fees are based on the complexity and nature of the work, and on the degree of responsibility and skill required. Any disbursements will be added to my invoice. All billings are due upon presentation, unless other arrangements have been made in advance. An interest charge of 1% per month (12.7%) on an annual basis) applies to overdue accounts.
(h) The undersigned agrees as part of these engagement arrangements, to personally guarantee payment of my fees for professional services rendered on his or her behalf, should his or her business entity fail to make payment on any fee or billing issued, within thirty days of receipt of same.
I confirm my duty
of confidentiality with respect to client affairs. Accordingly, except for information that is
in the public domain, I will not provide any third party with confidential
information concerning the affairs of the Company without the Company’s prior
consent, unless required to do so by legal authority, or by the Code of Ethical
Principles and Rules of Conduct (CEPROC) of the Certified General Accountants
Association of Ontario, or there is an exception granted under the Personal Information
Protection and Electronic Documents Act (PIPEDA) of Canada. Further, in order to complete my engagement,
I will require access to certain personal information. You hereby represent to me that you have
obtained all consents that are required under applicable privacy legislation
for the collection, use, and disclosure of personal information.
The above terms
will remain in effect from year to year unless amended in writing by both
parties or terminated by written notice by either party. Upon termination of this agreement, I will
invoice you for any unbilled fees and expenses.
Further, you agree to pay your account to the date of termination upon
receipt of my invoice, and the terms of billing and liability in this agreement
will survive indefinitely from the date of termination.
I shall be pleased
to discuss the contents of this letter with you at any time. If the above terms are acceptable to you, and
the services outlined are in accordance with your requirements, please sign the
copy of this letter in the space provided here and return it to me:
__________________________ ________________
Jonathan Smith,
ABC Company Date
Regards,
Walter Smith,
Certified General Accountant
If you have questions regarding payment terms or personal
guarantee phrasing in a letter of engagement, I would be happy to assist. Feel free to call me at my office number
below.
Blair DeMarco-Wettlaufer
Kingston Data and Credit
Cambridge, Ontario
226-946-1730
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