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:
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- 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.
- 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.
