Why are engagement letters important?

An engagement letter is essentially a contract between the firm and its client. The purpose is to set the scope of the work, and the respective responsibilities of each party.

Having a clear and formal agreement in place decreases the risk of disputes between parties. For services where there is a greater probability of dispute, such as in profit projections or cashflow forecasts, it is even more important to have a robust engagement letter.

What should an engagement letter contain?

Engagement letters are mandatory in a number of engagements, such as audits, but are suggested as best practice for all others.