Introduction

This helpsheet has been issued by ICAEW’s Technical Advisory Service. Members in practice are subject to certain requirements which must be communicated in writing to their clients. Commonly such matters are addressed in an engagement letter. This helpsheet provides guidance for members who choose not to issue engagement letters. This helpsheet is not intended to deal with the management of regulated activities.

Members may also wish to refer to the following related helpsheets and guidance:

• ICAEW Code of Ethics
• Duty on firms to investigate complaints
• Engagement letters and privacy notices
• Services directive

The case for issuing and engagement letter

Although engagement letters are not required in all cases, ICAEW recommends that members always consider issuing one as it helps successfully manage the client relationship. The helpsheet Engagement letters and privacy notices should be consulted for guidance on what to include in engagement letters and sample wordings.

An engagement letter is compulsory when providing audit services. This helpsheet assumes you are not providing regulated services and not handling client money.

Prefer not to issue an engagement letter?

If you prefer not to issue an engagement letter, you must take steps to discharge your legal and professional obligations in another way. The following sections highlight minimum requirements and offer some practical suggestions as to how to discharge those obligations.

Appendix 1 contains a sample ‘confirmation of principal terms of business’ letter. This is not a substitute for a properly drafted engagement letter and may not form a legally binding contract with your client. It will, however, satisfy your professional obligations to outline your complaints process and basis for your fees.

Your legal obligations

Right to cancel

In certain circumstances, The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (SI 2013/3134) offer a consumer the right to cancel. For these purposes, a consumer is defined as:

An individual acting for purposes which are wholly or mainly outside that individual's trade, business, craft or profession.

If engagement terms are agreed with a consumer as ‘distance contracts’ (for example, where the client has not been met face-to-face) or ‘off premises contracts’ (for example, at the client’s home), then in most circumstances, the client has the right to cancel the contract within a set period (usually 14 days). Under the regulations, the consumer must be notified of this right. Example wording is included within the Engagement letters and privacy notices helpsheet.

Please note, the sample ‘confirmation of principal terms of business’ letter in Appendix 1 assumes that the regulations do not apply as the contract was agreed at the firm’s premises.

Services Directive

The Services directive requires all service providers, including accountants, to provide certain information to clients and potential clients. There is no specific requirement as to how or where the information has to be provided, although it is likely that a substantial proportion of it will already be included on your letterhead, website and/or in your promotional material.

Guidance on the requirements and the information that must be made available is available in the helpsheet Services directive.

Data protection

Most accountancy firms will be data controllers with regard to most client service offerings (see the helpsheet UK GDPR – Data processor or data controller?) and there will not therefore require specific data processing causes in their contract with their client.

In the rare cases that a firm does act as a data processor, specific contractual clauses must be provided (further guidance is available in Part 3 of the Engagement letters and privacy notices helpsheet).

Whether the firm acts as a data processor or data controller, it will need to ensure that its privacy notice is made available to data subjects.

Alternative Dispute Resolution Regulations and handling complaints

Where you enter into an engagement with a consumer, Alternative Dispute Resolution (ADR) Regulations apply. The Regulations do not make the use of ADR mandatory, but they do oblige you tell a consumer about a certified ADR provider and whether you will use them. BEIS has provided a guide for use by businesses.

Your professional obligations

Duty on firms to investigate complaints

ICAEW Disciplinary Bye-Law 11 places a duty to investigate complaints on all firms. Failure to discharge this requirement is of itself misconduct. It states:

Every firm shall ensure that all new clients are informed in writing of the name of the principal to be contacted in the event of their wishing to complain about the firm’s services, and of their right to complain to ICAEW.

If the client is aware you are a sole practitioner, you would not separately have to confirm to the client that complaints should be addressed to you. However, if you have a number of staff and use someone else within your practice (e.g. a senior member of staff) or outside your practice (e.g. an alternate) to review complaints, you ought to make this individual known to the clients.

In the absence of a letter of engagement you could set out the principal responsible for dealing with complaints and the right to complain to ICAEW in a brochure, in a paragraph in the body of initial correspondence (perhaps when notifying the client of your decision to act), in a standard confirmation of terms of business letter, or on your website. Where the information is published on your website, you should send the client a link to the relevant part of the site by email and must be prepared to provide a copy of the relevant information in writing to the client on request.

This requirement would not be discharged by simply noting on the letterhead that the firm is a member-firm or that it is regulated for audit or DPB activities, by using the ICAEW logo or a legend.

The basis for your fees

Paragraph R330.4 of the ICAEW Code of Ethics requires the basis on which fees will be calculated to be explained and an estimated initial fee to be provided at the earliest opportunity. Paragraph R330.5 goes on to say:

A professional accountant shall provide fee quotes or details of the basis of fees in writing, either before the beginning of the engagement, or as soon as possible after the start of the engagement. This information would normally be provided in the engagement letter. If there is no engagement letter, then the professional accountant shall provide a specific document containing these details.

You should therefore confirm, in writing:

• whether you will charge on a time spent basis;
• confirmation of any estimate, quotation or indication given;
• whether the fee is a fixed fee;
• what the fees charged will cover (and, ideally, what the fees do not cover);
• where the basis of initial fees will differ from future fees, the basis on which such future fees will be rendered (and give examples of how the fees will be calculated such as indicative hourly charge out rates, explaining how and when the client will be advised of changes in hourly rate and of other relevant changes); and
• any likely disbursements of which you are aware.

In the absence of an engagement letter, you may choose to present this information in a brochure provided to the client, in your initial correspondence with the client, in a standard fee scale / policy sheet provided to your client or by publishing the information on your website. Where the information is published on your website, you should send the client a link to the relevant part of the site by email and must be prepared to provide a copy of the relevant information in writing to the client on request. Further guidance on the information to be provided to clients with respect to fees is available in the Fee information helpsheet.

The guidance here is to protect you and your clients by introducing clarity as to expectations. Most complaints have an element of dissatisfaction over fees behind them. A practical test you could apply is whether you could defend the fees invoiced in a court of law with written evidence agreed by the client.

Commissions

If the firm receives any kind of fee, commission, payment or benefit in connection with the referral of the client, the firm must obtain explicit written consent to retain the commission (paragraph R330.13 of the ICAEW Code of Ethics). Paragraphs 330.12 A1 to 330.13 A4 of the ICAEW Code of Ethics offer more detailed guidance and Part 4 of the Engagement letters and privacy notices helpsheet offers example wording.

Summary

Where a firm elects not to use an engagement letter, it must still ensure that the above legal and professional obligations are adhered to. This will necessitate communication in writing with the proposed client, although there is flexibility as to the format of such written communication.

If in doubt seek advice

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat.

Appendix 1 - Sample ‘Confirmation of Principal Terms of Business’ letter

Dear ……………..….. insert name

I was pleased to meet with you on ……………..….. insert date. You have agreed that I may contact your former accountant shortly. Once I have carried out the necessary client acceptance procedures, I will be able to confirm whether I am in a position to accept appointment to act on your behalf.

You have asked me to undertake ……………..….. insert the work to be undertaken for ……………..….. insert the relevant accounting period which has a filing requirement by ……………..….. insert date. In order to do so I will need to receive complete and relevant papers by ……………..….. insert date. I will also require you to respond in a timely manner to any further information and explanations that I may need. As any delay in providing me with such information can cause a delay in completing the work, you are responsible for ensuring that I am given everything in good time and you remain responsible for meeting any regulatory requirements.

You agree to allow me to approach third parties for information where appropriate. I will keep all information confidential, subject to legal and regulatory requirements. For the avoidance of doubt, my practice will be acting as a data controller under data protection legislation for the personal data to be held. My privacy notice is enclosed.

My fees will be commensurate with the seniority and professional expertise of the persons engaged on the work and based on the hours spent in performing the work. Should I come across anything which significantly alters the anticipated costs I will contact you setting out the circumstances and seek your instructions. The estimated fees quoted below are for the first year only, the basis of which is ……………..….. [give details].

The fees above are estimated based on the following [timetable] [provision of information] [and] [scope of work] …………………………[ give details.] Should these requirements not be met we reserve the right to notify you of a revised figure or range and seek your agreement to the change. [Add extra details if there will be disbursements, expenses etc ]. My future fees will be based on ……………..….. give details.

I will issue you with an invoice on completion of the assignment. My payment terms are ……………..….. insert details.

I look forward to having a long association with you. If during the course of our relationship you have any concerns about our service you can raise these with ……………..….. insert name in the first instance. If you raise any concerns which I cannot address to your satisfaction you have the right to take that issue up with ICAEW.

[For consumer clients] Should we be unable to resolve your complaint you may also be able to refer your complaint to an alternative dispute resolution (ADR) provider to try and reach a resolution. We will provide details of an ADR provider if we cannot resolve your complaint using our internal procedures, although we reserve the right not to use the provider. This is in addition to your ability to complain to ICAEW.

I confirm that I hold professional indemnity insurance with ……………..….. insert name of insurer of ……………..….. insert contact address. The territorial coverage is worldwide [excluding professional business carried out from an office in the United States of America or Canada and excludes any action for a claim bought in any court in the United States of America or Canada].

This contract was agreed at our business premises therefore cancellation rights given to consumers under The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 do not apply.

If you do not agree with any of the points in this letter please let me know in writing in the next [insert number] days.

Yours sincerely

……………..…..Name

……………..….. Role