Do you know how to provide your clients with clear and effective engagement letters?
Accountants and firms are beginning to offer more consulting services to their clients. Although consulting is a lucrative business, failing to establish your services and the scope of your services via effective engagement letters can hurt your professional relationships and leave you vulnerable to lawsuits.
Gusto and Practice Ignition delivered a recent webinar titled “Managing 2021 Consulting Risk Within Your Engagement Letters” about consulting, determining expertise, and engagement letters. The webinar featured the head of Gusto’s accountant community Will Lopez and the Head of Accounting at Practice Ignition and the Managing Director of Lance CPA Group Josh Lance.
In addition to this article, we also have two preceding articles based on the “Managing 2021 Consulting Risk” webinar. Part One is about the five pillars of accounting consulting, and Part Two breaks down the tips for evaluating your expertise so that you can begin incorporating consulting services into your firm.
In Part Three, Will Lopez and Josh Lance will teach you the importance of establishing professional standards and frameworks within your consulting services, establishing frameworks and scope management in your engagement letters, and how Practice Ignition helps you create clear and effective engagement letters.
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Professional standards and frameworks guiding consulting services
An essential part of offering consulting services is asking yourself what professional standards and frameworks will guide you. The American Institute of Certified Public Accountants [AICPA] governs many of the daily tasks that accountants provide clients, but the AICPA does not cover the various consulting services a firm can offer, such as HR and cash flow management:
When you look at the AICPA, there’s a lot of guidance around the things that we do as professionals day-in and day-out. Consulting is really not aligned to the greater, broader legislative body of governance over accounting. In these instances, you should ask probing questions to determine what risk the client is seeking to address, and what the client is seeking to achieve from your service.– Will Lopez
Some of the probing questions you’ll need to ask might include: “What issue is the client trying to resolve? Do they have a business risk? What do they expect me to deliver?”
The AICPA has a Statement of Standards for Consulting Services [SSCS], which states that when offering consulting services, it’s up to the practitioner to gauge the available information and make conclusions based on their own discretion. Although that may sound like accountants and firms have a significant amount of flexibility when offering consulting services, pulling in external frameworks to justify certain consulting decisions may be necessary:
While it is at your discretion to engage your client in any kind of consulting, consulting could come in a million different flavors. You need to understand that your discretion [and] your professional judgment needs to be layered throughout all of it because that’s actually what the standards require. … Your judgment should not only include understanding that you’re getting yourself engaged in something like this, but you also need to understand that you made need to pull in certain frameworks in order to justify that.– Will Lopez
One such framework that can train accountants in various people-based consulting services is the Gusto People Advisory Certification program. The People Advisory Certification program provides accountants with a consulting framework in HR, payroll, and benefits while also offering four CPE credits.
Frameworks and scope management in your engagement letters
When performing consulting services, accountants and firms need to express professional standards and frameworks in their engagement letters. Practice Ignition provides accountants with a helpful template for using frameworks like Gusto’s People Advisory Certification program:
If you’re engaging them with people-advisory services, Practice Ignition has developed an engagement letter template for you that will basically lay out that specific offering with the components and the framework to be delivered. You can stack that inside your existing engagement letter, or add it ancillary, but that’s what the requirements are suggesting.– Will Lopez
In addition to providing professional standards and frameworks in your engagement letters, it’s also essential that you articulate the scope of your services, especially when you’re providing client advisory:
Scope management is important for everything, for all your engagements, but it’s especially crucial for consulting because, as I just mentioned, consulting is what you decide between you and your client. It’s at your judgment and discretion, so it needs to be more explicit in that nature, and as the nature and scope of work performed is determined solely between you and your client.– Will Lopez
The scope of your services needs to be expressed explicitly in your engagement letters. Communication is crucial between you and your client, and clear engagement letters are necessary to avoid confusion or misunderstandings in your services. Will noted that the scope of your services for a client might change over time:
Expect the scope of work to change and evolve as new information is discovered. … Being a consultant and advisor is not a destination — it’s a journey. Expect that scope of work to change and evolve as new information is uncovered. … We reserve the right to get smarter, and consultants do as well.– Will Lopez
The scope of your services for a client may change over time, so it’s important to keep your client up to date with the evolving scope as you learn more and adjust your services accordingly.
Clear communication through engagement letters is also essential for keeping you and firm out of legal trouble. Will noted a case in which a consulting firm failed to articulate clearly the details of a service they were performing and faced legal repercussions.
The firm detailed in their engagement letter that they would enter a classified Research & Experimentation facility to determine security vulnerability. Although they obtained written permission from their client to enter the facility, they failed to express their intention to enter the facility through forced entry after business hours. They triggered the facility’s alarm and were arrested for breaking in.
Differences in interpretations of scope between the firm and client were missing. There was a lack of communication by the engagement that affected other parties. The client had not anticipated that the engagement would involve a forced entry into a building. That was not inside the scope. And law enforcement [wasn’t] notified in advance. And a copy of the engagement letter included contradictory statements about whether testing could occur after business hours.– Will Lopez
Although the consulting firm had the signed engagement letter from the client, they failed to clearly express the scope of the engagement, which led to legal ramifications. Clear communication through signed engagement letters is essential for your professional relationship with your clients and for protecting your firm.
The benefits of using Practice Ignition
An invaluable tool for creating engagement letters that strengthen your communication with clients is Practice Ignition. Josh Lance reiterated the importance of keeping your client up to date on the scope of the project and how Practice Ignition can assist you:
As the scope changes, we want to make sure our engagement letter is updated to reflect that change of scope. … We need to make sure we manage our client expectations throughout the engagement. … One of the ways we can do that and make sure we can have the right tools in place for us is using Practice Ignition. … [With Practice Ignition,] you don’t have to print, sign, and scan your engagement letters and your proposals for your clients to sign. … We can create and close these deals in under five minutes.– Josh Lance
With Practice Ignition, you can centralize the proposal and payment process to save yourself valuable time.
In order for them to sign that engagement letter, they have to provide their ACH information or credit card upfront. That ensures us that we’re going to get paid, ensures that we’re not going to be chasing them for payments and become bill collectors, [and] that we get those payments done upon an agreed-upon schedule that we have in our engagement letter.– Josh Lance
Practice Ignition also makes obtaining signatures painless. They collect e-signatures rather than forcing accountants and clients to print, sign, and re-scan. In addition to the convenience of easy payments and signatures, Practice Ignition also provides the ability for accountants to set up automated follow-ups and reminders for the client if they haven’t signed your engagement letter.
In summary, Practice Ignition is a great tool that will make the engagement letter process so much easier, while also protecting you and your firm from unneeded legal consequences.
Learn more about engagement letters and Practice Ignition!
Flawless engagement letters are absolutely crucial for you and your firm. You need to clearly express the standard practices and frameworks of the consulting services you offer and keep your client informed about the scope of your services. Presenting effective engagement letters not only prevents misunderstandings with your clients but also protects you from lawsuits.
The scope of your accounting and consulting services needs to be perfectly conveyed, and the best way to do that is through our partner Practice Ignition! Practice Ignition offers a 14-day free trial so that you can begin conveniently making proposals and receiving payment all in one place today for free.
If you want to learn more about offering consulting services and improving your engagement letters, be sure to check out the CPA Academy and Practice Ignition webinar here.
You can begin incorporating consulting services into your engagement letters by receiving the proper training from our People Advisory Certification program. You’ll become certified in people-centered consulting services, including HR, payroll, and benefits, while also earning four CPE credits. Learn more by visiting our People Advisory Certification program page.