A bookkeeping engagement letter is a formal document outlining the terms and conditions between a bookkeeper or accounting firm and their client. This letter serves as a contract that clarifies the scope of bookkeeping services, responsibilities, limitations, and expectations of both parties. It makes sure that both the bookkeeper and the client understand their roles and obligations. Additionally, it protects both parties by reducing misunderstandings and setting clear guidelines regarding payment terms, confidentiality, and compliance with regulations.
Templates
Components of a Bookkeeping Engagement Letter
Identification of Parties.
This section identifies the bookkeeper (or bookkeeping firm) and the client.
- If Stuart Martin from Martin Bookkeeping Services is entering into an agreement with Kate Phillips from Phillips Retail, this section will mention their names and addresses explicitly.
- It also states whether the client is an individual, a business, or a non-profit organization.
Example:
This agreement is made between Martin Bookkeeping Services, located at 123 Accounting Lane, New York, NY, and Phillips Retail, located at 998 Commerce St, Los Angeles, CA. The purpose of this agreement is to define the bookkeeping services to be provided and the terms governing this engagement.
Scope of Services.
A detailed description of the bookkeeping tasks the bookkeeper will perform. This section helps prevent misunderstandings about what services are included.
- The bookkeeper may agree to handle bank reconciliations, financial statement preparation, payroll processing, and accounts payable/receivable management.
- If tax preparation or financial advisory services are not included, this should be explicitly mentioned to set boundaries.
Example:
Martin Bookkeeping Services agrees to provide the following services to Phillips Retail:
- Monthly bank reconciliations
- Preparation of quarterly financial statements
- Processing of payroll for up to 15 employees
This agreement does not include tax filing or financial consulting services.
Responsibilities of the Client
The engagement letter specifies what the client must do to facilitate the bookkeeping process.
- The client may be required to provide all necessary financial documents, such as receipts, invoices, and bank statements, on time.
- The client may also need to ensure compliance with tax laws and provide timely responses to inquiries from the bookkeeper.
Example:
Phillips Retail agrees to provide all relevant financial documents, including bank statements, receipts, and invoices, by the 5th of each month. The client also agrees to maintain accurate records and respond to bookkeeping inquiries within three business days.
Fees and Payment Terms
This section outlines the pricing structure, payment schedule, and any penalties for late payments.
- The bookkeeper may charge a flat monthly fee of $500, an hourly rate of $50, or a per-transaction fee.
- Payment terms, such as whether payments are due monthly or upon completion of services, should be specified.
Example:
The client agrees to pay a flat monthly fee of $500 for the bookkeeping services outlined above. Payments are due on the 15th of each month. Late payments will incur a 5% penalty for each week overdue.
Confidentiality Clause.
Makes sure that both parties understand the importance of protecting sensitive financial information.
- If the bookkeeper is working with a retail business, they must keep the company’s financial records, sales data, and payroll information private.
- This section may also include an NDA (Non-Disclosure Agreement) to further safeguard confidential data.
Example:
Both parties agree to keep all financial and business records confidential. Martin Bookkeeping Services will not disclose any information regarding Phillips Retail’s financials to third parties without written consent.
Limitation of Liability.
Defines the extent of the bookkeeper’s responsibility in case of errors or miscalculations.
- If a bookkeeper processes financial statements based on incorrect information provided by the client, they are not liable for any resulting errors.
- It may also specify the maximum compensation the client can claim if the bookkeeper makes a mistake.
Example:
Martin Bookkeeping Services shall not be held liable for any financial discrepancies caused by inaccurate data provided by Phillips Retail. The maximum compensation for any bookkeeping error shall not exceed the total fees paid for the affected month.
Duration and Termination Clause.
Clarifies how long the engagement lasts and the conditions under which either party can terminate the agreement.
- A bookkeeping agreement may last for one year, after which it can be renewed.
- Either party may terminate the agreement with a 30-day written notice.
Example:
This agreement shall remain in effect for a period of one year from the signing date. Either party may terminate the agreement by providing a 30-day written notice. Upon termination, all outstanding fees shall be settled within 10 business days.
Compliance with Laws and Standards.
Makes sure that the bookkeeper follows relevant accounting laws and industry standards.
- The bookkeeper may be required to comply with Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).
- This clause ensures that the bookkeeping work aligns with government regulations.
Example:
Martin Bookkeeping Services agrees to adhere to Generally Accepted Accounting Principles (GAAP) and all applicable federal and state financial regulations to ensure compliance and accuracy in bookkeeping practices.
Dispute Resolution.
Outlines how disputes between the bookkeeper and the client will be handled.
- Example: If a disagreement arises regarding the fees charged, the parties may agree to resolve it through mediation rather than litigation.
- Some agreements specify the governing law and jurisdiction in case of legal action.
Example:
In the event of any disputes arising from this agreement, both parties agree to first seek resolution through mediation. If mediation fails, disputes shall be settled in accordance with the laws of the State of New York.
Sample Bookkeeping Engagement Letter
Doyle & Associates Bookkeeping
789 Finance Street
Los Angeles, CA, 90210
[email protected]
(310) 555-7890
March 12, 2095
Sherilyn Fenn
Fenn’s Fashion Boutique
456 Style Avenue
Los Angeles, CA, 90211
Subject: Bookkeeping Engagement Letter
Dear Sherilyn Fenn,
We are pleased to confirm our engagement to provide bookkeeping services for Fenn’s Fashion Boutique. This letter outlines our mutual understanding regarding the services to be provided, fees, and responsibilities.
1. Scope of Services
We will provide the following bookkeeping services:
- Recording financial transactions
- Reconciling bank and credit card statements
- Generating monthly financial reports
- Managing accounts payable and receivable
- Assisting with payroll processing
- Maintaining general ledger accounts
The services do not include tax preparation, audit support, or financial advisory services unless explicitly agreed upon in writing.
2. Client Responsibilities
To ensure the accuracy of bookkeeping services, you agree to:
- Provide all necessary documents and financial records on a timely basis.
- Maintain accurate records of income and expenses.
- Inform us promptly of any financial changes or discrepancies.
3. Fees and Payment Terms
Our fees for bookkeeping services are as follows:
- A flat monthly fee of $750
- Additional services, such as on-demand consultations, will be billed at $100 per hour
- Payments are due on the first of each month, and late payments will incur a 5% penalty
4. Confidentiality
We will maintain the confidentiality of all financial data and business information. No details will be disclosed to third parties without your written consent, except as required by law.
5. Limitation of Liability
While we take every measure to ensure accuracy, we are not liable for errors resulting from incorrect or incomplete information provided by you. In the event of any error on our part, our liability will not exceed the total fees paid for the affected month.
6. Term and Termination
This agreement is effective from April 1, 2095 and will continue until terminated by either party with a 30-day written notice. Upon termination, all outstanding fees must be settled within 10 business days.
7. Dispute Resolution
Any disputes shall first be resolved through mediation. If unresolved, legal proceedings will follow the laws of California.
Please indicate your agreement to the terms by signing below.
Sincerely,
Kevin Doyle
Doyle & Associates Bookkeeping
Kevin Doyle
Accepted and Agreed:
Sherilyn Fenn
Fenn’s Fashion Boutique
Sherilyn Fenn
FAQs
Yes, modifications can be made if both parties agree. Any changes should be documented in writing and signed by both the bookkeeper and the client to ensure clarity and legal validity.
Yes, it is a legally binding contract once both parties sign it. It serves as evidence of the agreed-upon services, payment terms, and responsibilities, which can be enforced in a legal setting if necessary.
While it is not mandatory, having a lawyer review the engagement letter can be beneficial to ensure that it is legally sound and covers all necessary aspects.
It should outline how long financial records will be kept by the bookkeeper and any conditions for their return or disposal.
Yes, if the engagement needs to be terminated, the letter should specify the required notice period, such as 30 days, and outline any final responsibilities of both parties.
If the client does not provide required documents on time, the bookkeeper may not be able to complete their duties. The engagement letter should specify consequences such as additional fees or delayed reporting.
