Every client you take on should have a signed engagement letter before work starts. ICAEW, ACCA, and AAT all mandate it for regulated work. It's a legal contract that defines the services, the fees, and the responsibilities of each party. Without it, you're doing unprotected work.
39% of accountancy firms that faced legal claims had not issued a proper engagement letter to the client.
That figure has been consistent across multiple surveys. It suggests that most practices know they should have them and most practices don't have them consistently.
What a compliant engagement letter needs to cover
- Scope of services: what you're doing and, critically, what you're not doing.
- Fees or fee basis: how you charge and when.
- Responsibilities of each party: what the client is required to provide and when.
- GDPR and data processing terms: how client data is handled and stored.
- Termination conditions: how either party exits the arrangement.
ICAEW's engagement letter package was updated in October 2025 to reflect legal services regulations that came into force on 1 October 2025. Many practices haven't refreshed their templates since then. If the letter doesn't reflect the current regulatory framework, it may not provide the protection it's meant to.
The scope creep problem
Engagement letters don't just protect you from claims. They define the boundary of what you're charging for. If work goes beyond what the letter covers, the firm may be doing unprotected work and may not be able to recover the revenue.
Under the revised FRS 102 revenue recognition rules, there's a further dimension: if a letter isn't signed before work starts, that work may not be recognisable as revenue in the correct period. The engagement letter is the contract evidence that supports revenue recognition.
What the admin actually involves
Tracking which clients have signed letters, which have unsigned or outdated versions, which need reissuing because the scope has changed, which need updating for the October 2025 regulatory changes: this is a continuous admin task. Most practices handle it inconsistently because nobody owns it specifically.
What we do
We track which clients have signed engagement letters, flag unsigned or outdated ones, file the right version per service line, and alert the relevant fee earner before work starts on a new scope. The professional judgement on what each letter should say stays with you. The admin of making sure every client has one stays with us.