Engagement letter requirements can be confusing, particularly knowing when the letters should be issued. Clarification can be found in APES 305 Terms of Engagement, which outlines the requirements. 

APES 305 states that ‘a member in public practice shall document and communicate the terms of engagement when providing professional services to clients in the engagement document.’

An engagement document should be given to all clients (including individual tax return clients). Acceptable formats include: standard format handout, brochure, leaflet or electronic communication.

If you are working on a number of individual tax returns, a standard format brochure, leaflet or electronic communication, which is signed and returned with the client's signed tax return, may assist with the administration of this requirement.

APES 305 does not require the engagement document to be signed, however, CPA Australia believes that it is best practice to keep a signed copy of the engagement document on file. This ensures that your client is taking responsibility for understanding your terms of engagement.

It is also preferable that the terms of engagement are communicated and explained to your client before the engagement is commenced. The general content of an engagement document should include:

  • purpose of the engagement
  • objectives of the engagement
  • scope of the engagement 
  • engagement output
  • relative responsibilities
  • involvement of other members
  • fees and billing arrangements
  • ownership of documents
  • confirmation by the client.

For a recurring engagement, a member may decide not to send out an engagement document for each occasion. This is providing that the member has issued an engagement document at some stage in the past.

There are various factors which may influence your decision to reissue an engagement document, including changes to: you and your client's understanding of the objectives or scope of the engagement; the terms of engagement; ownership, management or the nature of the client's business or your business; fee structures; and legal requirements.

It should also be noted that documentation issued to meet the requirement of the terms of engagement cannot reduce obligations imposed by law.

Sample client engagement letters are available for practitioners in Australia and New Zealand.