by John McCarthy Consulting Ltd. | Jun 12, 2026 | Blog, News
Part one of this two-part blog appeared last week where we looked at how best to tighten the language used in tax and other engagement letters to help minimise liability and improve communication with clients.
Below we discuss the main elements of the improved additional wording that might be inserted into tax engagement letters. The points discussed may be applied to all types of engagement letter, with minor tweaks.
Exclusion clause. Because tax services can be broad, an exclusion clause that identifies what services will not be provided is invaluable. For example, a payroll taxes preparation engagement might exclude subcontractor tax and VAT compliance.
Deadline for submitting return information. Clearly state the deadline by which the client must provide the information needed to prepare the tax return.
Limitation on use of the returns. Clients may submit tax returns and/or supporting data (like rental income computations) to named third parties in lieu of a financial statement. It is essential to limit potential liability by naming those third parties and include a clause limiting the circulation of tax returns, supporting data and distribution and/or requiring advance written permission before allowing the client to circulate the information to those named third parties.
Tax position clauses. Often it can happen that clients think a certain approach is acceptable, but this may often conflict with professional standards. Include language stating that tax positions taken must satisfy professional and ethical standards.
Supporting documentation. Because a Revenue Audit or investigation is always a possibility, remind clients of their responsibility to maintain adequate records to support the deductions claimed on the return. Include in the letter a reminder of the length of time for which the records should be maintained.
Revenue Audit or Investigation. Representing a client in a Revenue Audit may be more involved than the tax return preparation itself, for which many accountants may want to deal in a different manner to the main tax assignment e.g. by allowing for the use of specialist advice. The engagement letter should state that in the event of a Revenue Audit or Investigation, the assignment will be covered by the terms of a separately signed engagement letter.
Outcome or results. The engagement letter is not a marketing device. Never guarantee the outcome or results.
Limitation of liability. Ensure such clauses are used appropriately.
Complaints/best service. Make it clear what the lines of communication are, in the event of a dispute or claim (by giving the contact name for the Partner/Director in your organisation that will primarily handle client complaints) and in the event of failure to reach a satisfactory outcome give the contact details of your professional body.
If you need an up-to-date engagement letter, there is a search bar near the bottom of our home page (www.jmcc.ie) to quickly look up the item you need. More details see here.
For those of you still in the process of ISQM 1 implementation, please see our ISQM TOOLKIT or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please call or e-mail John McCarthy FCA or e-mail him at john@jmcc.ie.
We typically tailor our training and brainstorming sessions to suit each firm’s unique requirements.
Publications:
by John McCarthy Consulting Ltd. | Jun 7, 2026 | Blog, News
Tightening the language used in tax and other engagement letters will help limit your professional liability. This is part one of a two-part series of blogs on tax engagement letters.
Accountancy firms are taking a renewed interest in having well written and up to date engagement letters. In this blog we outline the fundamentals of best practice in tax engagement letters, and we suggest provisions that will help minimize legal liability faced by accountants in practice.
Professional liability insurers and defence solicitors will often agree that engagement letters are one of the first lines of defence in a professional negligence claim against an accountant. When drafted properly, engagement letters form the basis for an enforceable contract and should contain:
- caveats unique to the scope of the service provided
- state the amount of risk inherent in the engagement, and
- ensure that professional standards are met.
Over the years, in our experience, the majority of claims (by frequency) reported by leading professional indemnity insurers arise from tax services, yet individual tax engagements are where engagement letters are hardly ever used.
General Principles for all Engagement Letters
The following ten general principles apply to almost all types of engagement letter.
- Address the letter to the appropriate parties in a formal introductory paragraph.
- Exclude any taxes not within the scope of the tax return
- Exclude other entities owned by the individual tax client, if dealt with elsewhere.
- Include the appropriate year or years that are being prepared.
- Identify which returns are being prepared, and do not combine multiple returns. (For example, do not include a gift tax return service with an income tax return unless the proper disclaimer language for a gift tax return is included.) The following language is highly recommended.
‘We will prepare your [Year] income tax return. This engagement pertains only to the [Year] tax year, and our responsibilities do not include preparation of any other tax returns that may be due to any tax authority. Where we receive specific instructions from you about other taxes or other tax years, these assignments will be the subject of separate engagement letters. ‘
- Deal with the price of the service, payment terms, retainers, additional charges for information received late, additional fees.
- Clarity and diligence must be adhered to, as many professional liability lawsuits, professional body ethical complaints, and loss of clients have resulted from misunderstanding these provisions. Too often, a phrase like the following is used in a standard letter:
‘Our fee for services will be at our standard hourly rate for the personnel assigned to this engagement [or fixed fees to cover other than hourly fee arrangements]. Payment is expected when our services are complete.’’ This is far too vague and uncertain.
- The following improvements to the wording will help a lot:
- Specify more clearly the payment terms.
- If you wish, stipulate that a retainer will be required and will be applied toward the final fee and that the retainer is not an estimate of the fee charged for services.
- Identify when payment is expected.
- Provide for a termination of services if the fee is not paid in full.
- Use an additional charge clause for services not originally contemplated.
- Include a provision for reimbursement for out-of-pocket expenses such as travel, registered delivery, etc.
- Use a tax checklist that is sent to clients. The value of tax checklist in defending a professional liability claim cannot be overstated. However, many tax advisers complain that their clients do not complete the checklist and often return it unopened.
Accountants and tax advisers need to get the client to take responsibility for completing the checklist. The language used in the engagement letter should establish this responsibility:
‘We will prepare the returns from information which you will furnish to us. It is your responsibility to provide all the information required for the preparation of complete and accurate returns. We will furnish you with questionnaires and/or worksheets as needed to guide you in gathering the necessary information. Your use of such forms will assist us in keeping our fee to a minimum. To the extent we render any accounting and/or bookkeeping assistance, it will be limited to those tasks we deem necessary for preparation of the returns’.
- AI – include an appropriately worded paragraph in the letter of engagement informing clients about the potential use of artificial intelligence in carrying out tax assignments. All our template engagement letters on the website have been updated with such a paragraph about AI.
More next week on the style of improved wording that a tax engagement letter might contain.
If you need an up-to-date engagement letter, there is a search bar near the bottom of our home page (www.jmcc.ie) to quickly look up the item you need. More details see here.
For those of you still in the process of ISQM 1 implementation, please see our ISQM TOOLKIT or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please call or e-mail John McCarthy FCA or e-mail him at john@jmcc.ie.
We typically tailor our training and brainstorming sessions to suit each firm’s unique requirements.
Publications:
by John McCarthy Consulting Ltd. | May 30, 2026 | Blog, News
Auto enrolment came into force in January 2026 for firms providing payroll services and this new development along with the fact that more firms are using artificial intelligence (AI) in their day-to-day work means that engagement letter terms may need an urgent review. Both these developments are just some of the changes in practice that can cause existing letters of engagement to become out of date or no longer relevant.
Firms should consider whether the terms/conditions in the letters of engagement with clients need up-to-date clauses or paragraph explaining the firm’s use of artificial intelligence in its work and that deal with auto enrolment responsibilities when payroll services are provided.
Regarding AI especially, clear wording on how AI may be used and obtaining written client consent to that use is important and may help keep engagement terms current and transparent for accountancy clients.
All our engagement letter templates have been updated for the use of AI and payroll engagement letters include a relevant auto enrolment terminology. These templates are now available to download in Word format at www.jmcc.ie and are priced at €70 each, plus VAT.
Depending on your requirements, we can also tailor other types of template letter to order. If you need a specially tailored template, please send an e-mail to john@jmcc.ie and you will receive a quotation. Once agreed we will deliver your template within a specified time limit.
If you would like to update your engagement letters, visit www.jmcc.ie to download a template or contact us about a tailored version for your firm.
There is also a search bar near the bottom of our home page (www.jmcc.ie) to quickly look up the item you need. More details see https://jmcc.ie/publications-store/
For those of you still in the process of ISQM 1 implementation, please see our ISQM TOOLKIT or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please call or e-mail John McCarthy FCA or e-mail him at john@jmcc.ie.
We typically tailor training and brainstorming sessions to suit each firm’s unique requirements.
Publications and AML webinar:
-
- The ISQM TOOLKIT 2022 is available to purchase here.
- See our latest Anti-Money Laundering Policies Controls & Procedures Manual (March 2022) – View the Table of Contents click here.
- Also we have an updated AML webinar (March 2022) available here, which accompanies the AML Manual. It explains the current legal AML reporting position for accountancy firms and includes a quiz. Upon completion, you receive a CPD Certificate of attendance in your inbox.
- To ensure your letters of engagement and similar templates are up to date visit our site here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items if bought together.
by John McCarthy Consulting Ltd. | May 12, 2026 | Blog, News
Accountancy and tax firms are often worried about what are the most important parts of the AML legislation and requirements that they need to concentrate on. Here is a list of the Top 8 requirements that need the most attention.
Here is a list of the Top 8 requirements that need the most attention.
1. Firm-wide risk assessment
Sometimes this document is called the Business Wide Risk Assessment. Firms must document the money laundering and terrorist financing risks they face across five key areas:
- their client base,
- services provided,
- geographies,
- transactions, and
- delivery channels, and
explain how those risks are mitigated. See our Business Risk Assessment for AML purposes sample template from June 2024 for assistance.
2. Customer due diligence (CDD)
Firms must identify the client, understand ownership and control, assess risk, and verify identity. This includes identifying beneficial owners and applying a risk-based approach.
3. Ongoing monitoring
Client Due Diligence (CDD) also known as ongoing monitoring is not a once-off exercise. New clients typically attract the most CDD at the outset of the client relationship but if your CDD documentation is already five years old, without any interim reviews, its likely to be out of date. Firms must keep client information and risk assessments up to date, revisit them when circumstances change, and review transactions for anything unusual.
4. Enhanced due diligence (EDD) where required
Higher-risk situations require extra checks, such as deeper source of funds/source of wealth enquiries, sanctions and PEP screening, closer monitoring, and stronger internal approvals.
5. Suspicious transaction reporting (STRs)
Firm staff must know when concerns amount to suspicion and when a STR should be submitted internally to their MLRO. Staff and the MLRO must avoid tipping off and document decisions carefully.
6. Written AML policies, controls, and procedures
Firms need clear written procedures showing how they manage AML compliance in practice, including CDD, escalation of reporting to the next level and to the MLRO, record-keeping, and internal controls.
7. Training
Staff and relevant subcontractors must be trained so they understand AML risks, red flags, and how to escalate concerns appropriately.
8. Compliance review and RBO discrepancy reporting
Firms should regularly review whether their AML controls are working effectively, and they must have procedures to identify and report two types of anomalies:
in beneficial ownership information to the RBO.
If any of the above matters seem unclear, please contact us at john@jmcc.ie for an AML Compliance Review and/or a tailored AML Training webinar.
We typically tailor training in audit, accounting and AML to suit each firm’s unique requirements.
Publications and AML webinar:
by John McCarthy Consulting Ltd. | May 1, 2026 | Blog, News
Concluding our three-part series on Audit Hot Topics for 2026, last week and the week before we looked at some of the main areas that are topical at the moment. This week we look at a further tranche of issues to remind auditors as the audit season for SME entities commences.
Independence issues
Common pitfalls around audit independence include situations where:
- Individuals within firms, or entities related to the audit firm act as company secretary to audit clients or as trustee for a trust with a material interest in an audit client; and
- non-audit services provided on a contingent fee basis (normally linked to capital allowances claims, research and development tax claims or similar work) are provided.
SoQM
So that a System of Quality Management (SoQM) can be effective it needs to include:
- appropriate administrative and accounting procedures;
- an internal/external quality control process (typically hot and cold file reviews);
- effective procedures for risk assessment, and
- effective control and safeguard arrangements for the information processing system used by the audit firm i.e. data security.
If your firm needs assistance with its SoQM implementation and compliance with the ISQM 1 standard, please see our website store for the ISQM Toolkit.
Audit evidence and documentation
Many of the audit cold file review findings relate to documentation weaknesses. A very useful guidance document was published by the Chartered Accountants Ireland in March 2026 called ‘Guidance for audit evidence and documentation’ which will be a great help to audit teams to improve their audit documentation.
Our audit file review service is available either on-site or remotely where we will provide you with a written report benchmarking your audit file against the appropriate standards. You will receive a gap analysis of where your firm stands on a particular assignment within clear direction as to appropriate action to consider for improvement.
For those of you still in the process of ISQM 1 implementation, please see our ISQM TOOLKIT or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please call or e-mail John McCarthy FCA or e-mail him at john@jmcc.ie.
We typically tailor training and brainstorming sessions to suit each firm’s unique requirements.
Publications and AML webinar:
-
- The ISQM TOOLKIT 2022 is available to purchase here.
- See our latest Anti-Money Laundering Policies Controls & Procedures Manual (March 2022) – View the Table of Contents click here.
- Also we have an updated AML webinar (March 2022) available here, which accompanies the AML Manual. It explains the current legal AML reporting position for accountancy firms and includes a quiz. Upon completion, you receive a CPD Certificate of attendance in your inbox.
- To ensure your letters of engagement and similar templates are up to date visit our site here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items if bought together.
by John McCarthy Consulting Ltd. | Apr 27, 2026 | Blog, News
Continuing our three-part series on Audit Hot Topics for 2026, last week we looked at some of the main areas that are topical at the moment. This week we look at some more to act as a reminder to auditors as the audit season for SME entities commences.
Revenue
Revenue is always one of the most significant items in any set of financial statements and is often a significant risk area. Weaknesses in testing are common in the testing of revenue, especially in the areas of:
and it’s important for audit teams to commence the testing from outside the client accounting system i.e. from the sales order (external), not from the sales invoice (internal).
Journals testing (ISA 315)
Journals entries processed at the client entity must always be tested, but many files are lacking evidence that this work is done.
Some audit firms are making good use of technology to test journals, like data analytics within Excel or specialised data analytics tools but it’s important to define the outliers you are looking for in the software so that they are appropriately tailored to the audit entity.
Accounting Estimates ISA 540
Everyone acknowledges that the audit of accounting estimates is a difficult area. Auditors need to appropriately challenge the method, assumptions and data used in the determination of the estimate. Sometimes this may involve having discussions with experts, like quantity surveyors, pensions actuaries and property valuation experts.
This communication should document an assessment and evaluation of the expert’s qualifications, experience and independence, but also challenge the expert’s approach to calculate the estimate.
Our audit file review service is available either on-site or remotely where we will provide you with a written report benchmarking your audit file against the appropriate standards. You will receive a gap analysis of where your firm stands on a particular assignment within clear direction as to appropriate action to consider for improvement.
For those of you still in the process of ISQM 1 implementation, please see our ISQM TOOLKIT or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please call or e-mail John McCarthy FCA or e-mail him at john@jmcc.ie.
We typically tailor training and brainstorming sessions to suit each firm’s unique requirements.
Publications and AML webinar:
-
- The ISQM TOOLKIT 2022 is available to purchase here.
- See our latest Anti-Money Laundering Policies Controls & Procedures Manual (March 2022) – View the Table of Contents click here.
- Also we have an updated AML webinar (March 2022) available here, which accompanies the AML Manual. It explains the current legal AML reporting position for accountancy firms and includes a quiz. Upon completion, you receive a CPD Certificate of attendance in your inbox.
- To ensure your letters of engagement and similar templates are up to date visit our site here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items if bought together.
