Engagement Letter
A written agreement defining the terms of a professional service engagement.
Definition
An engagement letter is a document formalizing the terms of a professional service relationship. Common in accounting, legal, and consulting fields, engagement letters specify the scope of services, fees, responsibilities of both parties, and other key terms.
Unlike comprehensive contracts, engagement letters are typically shorter and less formal while still creating binding agreements. They're designed to clearly establish expectations before work begins, preventing misunderstandings.
Why It Matters
Engagement letters protect both parties by documenting what was agreed before services begin. They're especially important for professional services where scope can be ambiguous and fee disputes common.
Many professional standards and insurance policies require engagement letters. Beyond compliance, they demonstrate professionalism and set appropriate client expectations.
Examples
- 1
A CPA's engagement letter specifies: tax returns to be prepared, documents needed from the client, fee structure, and filing deadlines.
- 2
A lawyer's engagement letter covers: scope of representation, billing rates, retainer requirements, and communication expectations.
- 3
A consultant's engagement letter: services to be provided, timeline, fees, and specifically what's excluded from scope.
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