Accounting in Jamaica- Engagement Letters

Accounting in JamaicaThe 411 on Engagement Letters

Thursday, July 11, 13

What is an Engagement Letter?


The Engagement Letter❖ This is an important contract that must be established at

the beginning of any Accounting transaction.

❖ This is often overlooked by accountants.

❖ Without this document there is a greater risk of an accountant being sued for malpractice as there is no legal document setting forward the responsibilities of all parties and guidelines to be followed throughout the service period.

❖ In general accountants need this document for any legal predicament that might arise.


The Engagement Letter

❖ The engagement letter must always specify the scope of services to be rendered.

❖ If the service provided changes even in the slightest way, the engagement letter should be amended and the amended version signed by both parties.

❖ An engagement letter should be prepared immediately following the first meeting with a client and a new letter should be authorised by both parties for each retainer.


It’s Not the Representation Letter

❖ The engagement letter should not be confused with the representation letter.

❖ The engagement letter is the guiding document by which the service relationship is defined.

❖ The representation letter is a recitation of the representations made by the respective parties to each other.


Why is the Engagement Letter Important?


Engagement Letter: Why is it important?

❖ Protection - If an accountant has to face the Institute of Chartered Accountants in Jamaica (ICAJ), the Public Accountancy Board (PAB) and then court, for their own protection they need their engagement letter. This document is proof there was no misunderstandings of client expectation and the services rendered.

❖ Compliance with International Standards on Auditing (ISA) 210


Engagement Letter: Why is it important?

❖ Compliance with the Proceeds of Crimes Act (POCA) for client identification - in case you commence doing business with an entity that comes under the scrutiny of the Government’s fraud entities you want your documentation to be immaculate.

❖ Compliance with ICAJ’s requirement to carry Professional Indemnity Insurance(PII) adopted in 7/2012 Annual General Meeting. PII ensures that any claim brought against an ICAJ and ACCA practicing member are capable of being successfully fought and recovered.


What is in an Engagement Letter?


What to include in the Engagement Letter

❖ Professional Services - the type of professional accounting services you will be providing to the client.

❖ Client Obligations - all the responsibilities of the client with respect to the engagement. For example - providing all the information and documentation you will need to complete your duties.

❖ Accountant Responsibilities- All actions required by the accountant, this is directly related to the terms of the engagement.



❖ Timeline of the Service Period- Specify the time when the engagement begins and times for the completion for each obligation.

❖ Billing Procedures- This must never be omitted. You may be tempted to leave out this information but it is essential for the client to have this information and will help you in the case payment issues arise. In this section you can include frequency of billing, collection, interests on overdue accounts etc.

❖ Termination Procedures - Terms and conditions for each parties withdrawal from he contract must be stipulated within the engagement letter.

❖ Limitation of Liability



❖ Engagement Limitations- A section of the letter needs to cover the limitations of the services you will be providing, e.g. the accountant is not responsible for detecting fraud or that the accountant is not performing an audit.

❖ Confidentiality Clause- To protect your work, provisions must be made in the engagement letter that stipulates how a client can use the work you have produced for them, so that it isn’t plagiarized or wrongly distributed.

❖ Report Type- The type of report required from the accountant by the client should also be specified with the engagement letter, e.g. Audited Financial Statements.



❖ Modes of Communication- This outlines all official means of communication between client and accountant, i.e. telephone, emails, letters, fax etc.

❖ Litigation Protection Clause- Sometimes an engagement letter will also cover the methods of litigation for dispute resolution.

❖ Confirmation- This section must be signed by all parties to show that all the terms, conditions and stipulations are agreed to.


Please Note


Engagement Letter for Tax Work

❖ It is highly recommended that all practitioners should issue a letter of engagement for any tax work.

❖ When the accountant is acting as an agent for a client (for tax returns) or as a principal (expenditure account prepared for a sole trader) or for consultancy work, these distinctions must be made in the Engagement Letter.


Engagement Letter for Tax Work

❖ Separate Engagement Letters should be issued for each client that a service is provided for. E.g. Separate Engagement letters should be issued if you are providing tax services for:

• A husband and wife

• An individual and, following death, the personal representatives administering the deceased’s estate

• A company and its shareholders

• A company and its directors

• A Trust and its Beneficiaries


Now you know.Good luck writing your

Engagement Letters.

See an example of an Accounting Engagement Letter.You can find out more about Accounting in Jamaica at

headofficeapp.com


http://headofficeapp.com














































































































http://www.pab.gov.jm/documents/PABICAJImportanceofEngagementLettersAppendixI.pdf

http://www.pab.gov.jm/documents/PABICAJImportanceofEngagementLettersAppendixI.pdf



Accounting in Jamaica- Engagement Letters

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