The pen is mightier than the sword. This saying is true for any professional liability claim dispute between client and accountant but especially when the dispute relates to client accounting and advisory services (CAS). Why? The nature of a CAS engagement, like any other consulting service, is determined solely by the agreement between the accountant and client. When that agreement is vague, or worse, not written down at all, accusations can fly and fingers can point. Consider how the outcome of the following claim story could have been different.

A midsize CPA firm acquired a smaller firm that provided various accounting, tax, payroll services, and general business advice to a popular local brewpub. The client was happy to continue working with the new firm, stating that the new firm “should just continue to do what the old firm did.” The brewpub was a longtime and loyal client of the old firm and had good realization and a reliable annuity fee, so the new firm obliged.

Some years later, in response to whistleblower complaints from employees, the local jurisdiction conducted a payroll audit of the brewpub and determined it was not in compliance with a local ordinance that required employers with a certain number of employees to provide overtime, sick leave, and health insurance. The brewpub was forced to make back payments to employees and was assessed penalties by the locality. The client then reduced its workforce to fall under the ordinance’s threshold, but the fired employees sued the brewpub for retaliation. Eventually, the local news picked up the story and highlighted the penalties and employee retaliation claims, casting the client in a negative light.

The client sued the CPA firm for nearly $1 million in damages, including reimbursement of penalties and back payments as well as amounts for reputational damage, lost sales, and resolution of the retaliation complaints. The client asserted they relied on the accounting firm as their trusted business adviser. They further asserted that the firm had told them the local ordinance did not apply.

Defense of the claim was challenging, as there were no engagement letters. Workpapers evidencing the nature of the accounting firm’s services or summarizing conversations between the client and accounting firm were sparse or nonexistent. Invoices included fees for discussions about the local ordinance, but the follow-up letter claimed to have been sent from the accountant to the client was nowhere to be found. Without documentation to support the CPA firm’s position and the scope of services, the claim was eventually resolved for several hundred thousand dollars.

How to start writing an engagement letter for Client Accounting Services

Many practitioners have sat down to write the scope of service for a CAS engagement and wondered where to begin. This is because writing may not be the best place to start. Crafting a solid CAS engagement letter starts with having a thorough conversation, or conversations, with the client. During these conversations, gain an understanding of what the client truly needs. It may differ from what they initially thought. Identify what services you can offer to address their needs and that are permissible by the AICPA or other applicable professional standards (see the sidebar, “Preparation or Consulting? Which Standard to Reference in the Engagement Letter”). Some questions to ask the client during these scoping discussions could include:

• What is your primary concern?
• What risks are you seeking to address?
• How do you intend to use the information I provide to you?

This iterative process, while sometimes time-consuming, results in a common understanding, aligns expectations, and lays the foundation for an effective engagement letter.

What to include in a CAS engagement letter

Once the parties are on the same page, it is time to put the agreement in writing. A typical engagement letter includes these common elements:

Objective and scope of services

This is the essence of the CAS engagement letter. Be detailed and specific about what you are going to do for the client and how often (monthly, quarterly, etc.). Avoid industry jargon and acronyms. When the terms are written clearly, an independent party should be able to read the scope of services and understand exactly what you will provide to the client. The use of a table is suggested for a cleaner presentation.

Accountant and client responsibilities

The accounting firm’s responsibilities should be limited to the scope of services outlined in the engagement letter. The client’s responsibilities may vary by engagement but should include at minimum high-level oversight of the engagement team, review and approval of the firm’s deliverables, making decisions regarding advice provided by the firm, and evaluating and accepting responsibility for the results of the firm’s services. Remember, while the firm may provide high-level strategic advice and services to the client, the client always has the fundamental and ultimate responsibility for managing their business. This is a duty that can never be outsourced.

Deliverables, including any limitations on use

Every engagement has a deliverable resulting from the services provided, even if it is not as obvious as an audit report or tax return. The engagement letter should outline the deliverables that result from the services provided. In a CAS engagement, deliverables could include the general ledger and journal entries, paid invoices, accounts receivable aging reports, or profit-and-loss statements with comparatives to prior period and budget, for example. Identifying and outlining the work products that flow from a CAS engagement in a table with the detailed scope is suggested. Since CAS engagement deliverables are typically for client use only, be sure to note this in the engagement letter.

Fees, timing, and withdrawal provisions

Identify how fees will be calculated and charged. Limit the timing of the engagement to no more than one year. Include circumstances under which the client and firm are unilaterally permitted to terminate the engagement, including nonpayment of fees. 

Other business terms and conditions

Many firms utilize a terms-and-conditions addendum to incorporate other business, risk management, and legal terms such as billing and payment protocols, limitation of liability and damages, and designation of jurisdiction and venue. 

HOW TO MANAGE SCOPE CHANGES

Despite your best efforts during the engagement letter process, the scope of a CAS engagement often changes after it starts. This is generally welcome news, as it can result in additional services and fees. However, care should be taken to document and agree on any scope modifications to avoid diminishing the effectiveness of the engagement letter you worked so hard to prepare. Scope change documentation could include, in order of formality:

• A signed engagement letter amendment;
• An email with the client confirming the requested change and impact on services and fees; or
• A change log that captures various modifications over a period of time, such as a month, that is reviewed and discussed with the client.

A new, separate engagement letter is recommended for significant scope changes or when other services, such as tax return preparation, are requested.

Other suggestions to help manage scope creep include:

• Communicating the scope of the engagement to the entire team, especially those performing day-to-day services;
• Empowering junior team members to identify and elevate changes for proper resolution and rewarding them for doing so; and
• Holding regular status update meetings with the client to review progress, issues encountered, information needed, and more. Be sure to prepare minutes of status meetings and share them with the client.

AN ALTERNATIVE?

When practitioners are asked why they do not use engagement letters for CAS or why their engagement letters are broad and nonspecific, the response is usually one of the following:

“Writing a CAS engagement letter using your suggestions takes too long.”

“I need an engagement letter that is broad enough to allow for flexibility since I don’t know what I’m going to do yet but need to get started.”

These are both understandable responses. Why not try a different approach by starting small and getting paid to scope? A short, high-level needs assessment, engaged under a tightly written separate engagement letter that emphasizes the limited nature of the engagement, can help you better understand the client’s current state and identify recommendations to help them improve. Activities for a needs assessment engagement could include process walk-throughs, reading documentation, and interviews of client personnel. The deliverable outlines your observations and recommendations and serves as the starting point for your next engagement letter.

Regardless of the approach you take, a well-drafted engagement letter is a crucial tool in your risk management toolbox. As CAS services continue to gain popularity, practitioners should remember that clarity today can help prevent costly disputes tomorrow.

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Preparation or consulting? Which standard to reference in the engagement letter

In April 2025, Statement on Standards for Accounting and Review Services No. 27 (SSARS No. 27) was issued and clarified that an accountant is not required to apply AR-C Section 70, but application is not precluded, when the accountant prepares financial statements as part of a consulting services engagement. Since then, a common question has arisen regarding the practical application of SSARS No. 27, namely, when does the AICPA Statement on Standards for Consulting Services (SSCS) apply to an engagement that includes the preparation of financial statements and when doesn’t it?

In answering this question, it is helpful to ask yourself one question about the engagement: “If the preparation of financial statements was not part of the scope of services, would there be an engagement at all?” If the answer is “yes,” then it is likely that the engagement would be delivered in accordance with the SSCS, and the engagement letter would refer to the SSCS. If the answer is “no,” then the engagement would likely be delivered in accordance with the SSARS, and a financial statement preparation engagement letter would be used.

Put differently, when the financial statements “fall out of” or are an “output” of a broader consulting or client accounting service, then it is more likely that the SSCS will apply to the entirety of the engagement.

For more assistance on this topic, refer to the AICPA decision tree resource and SSARS Standard Clarification: Frequently Asked Questions from CPA.com.

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Double-digit growth trend

17%: The growth in revenue for CAS practices reported by respondents according to the 2024 CPA.com and AICPA PCPS CAS Benchmark Survey.

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Sarah Beckett Ference, CPA, is a risk control director at CNA. For more information about this article, contact specialtyriskcontrol@cna.com.

Continental Casualty Company, one of the CNA insurance companies, is the underwriter of the AICPA Professional Liability Insurance Program. Aon Insurance Services, the National Program Administrator for the AICPA Professional Liability Program, is available at 800-221-3023 or visit cpai.com.

This article provides information, rather than advice or opinion. It is accurate to the best of the author’s knowledge as of the article date. This article should not be viewed as a substitute for recommendations of a retained professional. Such consultation is recommended in applying this material in any particular factual situations.

Examples are for illustrative purposes only and not intended to establish any standards of care, serve as legal advice, or acknowledge any given factual situation is covered under any CNA insurance policy. The relevant insurance policy provides actual terms, coverages, amounts, conditions, and exclusions for an insured. All products and services may not be available in all states and may be subject to change without notice.