Proposals · Glossary
What is an engagement letter?
An engagement letter is a letter from a professional, such as an accountant, bookkeeper, lawyer or consultant, that confirms in writing what they have been engaged to do, what they will not do, how fees are charged, who is responsible for what, and the terms of the relationship. The client signs it to agree before work starts.
For accountants in Australia, an engagement letter is close to an obligation rather than a courtesy. For everyone else it is the cheapest insurance against a dispute about what was agreed.
Indunil Asanka · Co-founder
4 min read · Published
| Engagement letter | Proposal | Service agreement | |
|---|---|---|---|
| Main job | Confirms an engagement already agreed in principle | Persuades a client to choose you | Sets out the full legal terms of an ongoing service |
| Typical sender | Accountants, lawyers, auditors, consultants | Any business pitching for work | Either party, often drafted by a lawyer |
| Tone | Plain, specific, factual | Persuasive with evidence and options | Formal, clause by clause |
| Key contents | Scope, exclusions, responsibilities, fees, terms, limitation of liability | Problem, approach, deliverables, price, timeline | Definitions, obligations, payment, liability, termination |
| Signed by | The client, sometimes both | Accepted by the client | Both parties |
What it does
The engagement letter turns a conversation into a record. It says what the professional has agreed to do and, just as importantly, what they have not, so that a client cannot later assume a bookkeeper was reviewing tax positions or a consultant was implementing what they recommended. The Tax Practitioners Board recommends a written agreement before a tax or BAS agent starts work, saying it helps avoid misunderstandings about fees and scope.
What the accounting standard requires
For members of the Australian accounting bodies in public practice, APES 305 Terms of Engagement sets the rules. It requires the terms of an engagement to be documented and communicated to the client, lists matters an engagement document should cover, and deals with when the document must be reissued for a recurring engagement, such as when the scope, the law or the client's circumstances change. The current revision applies to engagements commencing on or after 1 January 2025. Professional bodies in other countries, such as the AICPA in the United States, publish their own guidance.
What to put in one
The parties and the entity being served, the purpose and scope of the work, specific exclusions, the deliverables and timing, what the client must provide and by when, fees and how they are calculated, billing and payment terms, ownership of working papers, confidentiality, any limitation of liability scheme, how the engagement ends, and a line for the client to sign. The Tax Practitioners Board also suggests separate letters where one adviser acts for related parties, such as a company and its directors.
Common mistakes
Using one template for every client without editing the scope, so exclusions do not match the work. Describing fees as standard rates without saying what the rates are. Leaving out what happens when the client provides records late. Never reissuing the letter as the engagement changes over years. And not getting it signed, which leaves the professional relying on an email trail to prove what was agreed.
Where it shows up in the product
In the proposals module, an engagement letter can be written as a proposal with a pricing table of the fee lines, terms as numbered clauses, and a valid until date after which it expires and cannot be accepted. Clients can accept with a click, typing their name and email and drawing a signature beside a consent statement, or through e-signature with an emailed code, which also lets the practice countersign as signer two. The bookkeeping and accounting proposal template is a starting point.
Questions people ask
Is an engagement letter a contract?
Once the client signs or otherwise accepts it, an engagement letter usually forms part of the contract between the professional and the client, often together with standard terms of business attached to it. Its legal effect depends on what it says and how it was accepted, so professionals commonly have their template reviewed by a lawyer.
Does every new client need a new engagement letter?
Yes, each client should have its own, and related parties such as a husband and wife, or a company and its directors, often need separate letters when the adviser acts for each. The Tax Practitioners Board gives these examples. A single letter covering several entities can blur who is responsible for paying and who the adviser owes duties to.
How often should an engagement letter be updated?
Whenever the scope, fees, law or the client's circumstances change, and at least reviewed each year for recurring work. APES 305 deals specifically with when an engagement document should be reissued for a recurring engagement, and the Tax Practitioners Board recommends reconfirming ongoing arrangements regularly, preferably annually.
What is the difference between an engagement letter and terms of business?
The engagement letter is specific to one client and one job: this scope, these fees, these deadlines. Terms of business are the general rules the firm applies to every client, such as how disputes are handled. Many firms send a short engagement letter that refers to attached standard terms, and the client accepts both together.
Can an engagement letter limit an accountant's liability?
It can refer to a limitation of liability scheme, and APES 305 covers how members who participate in a professional standards scheme communicate that. Beyond such schemes, attempts to exclude liability are limited by law and professional obligations. A letter that tries to exclude everything is less likely to be relied on than one that sets realistic limits.
Make one with proposals
The button opens the generator with this use case already described. Change the wording to match your own.
Create a proposal with OneCraftRelated questions
- Statement of work vs proposal: which comes first and whyStatement of work vs proposal: the proposal wins the job, the statement of work defines delivery. What each holds, when each is signed, and how they connect.
- Quote vs estimate vs proposal: what each one commits you toQuote vs estimate vs proposal: what each document commits you to, when a buyer expects each one, and how a proposal wraps a fixed price in a case for the work.
- Is an accepted quote legally binding?Is an accepted quote legally binding? Usually yes, once the offer, acceptance and consideration are present. When it holds, when it does not, and what to keep.
- What is an acceptance certificate?What is an acceptance certificate? A record of who accepted a proposal or quote, when, what they saw and what they agreed. What it holds and why it matters.
Step by step in the builder: Create a quote with AI, then Add a pricing table with optional extras.
Written and checked by the OneCraft team. Last checked .