engagement-letter-drafter

Engagement Letter Drafter

This skill turns a handful of deal parameters into a structured, professional first-pass engagement (or scoping) letter that a partner, director, or manager can review and refine. It is for practitioners in advisory, accounting, audit, tax, and FP&A who need a consistent, defensible starting point fast, without copying any firm's proprietary precedent. The output follows the spirit of ISA 210 (agreeing the terms of audit engagements) and general professional best practice on scope, fees, responsibilities, and risk-allocation clauses, while staying firm-neutral.

When to use this

• A new client or project has been won and a written engagement letter must be issued before fieldwork begins.
• You have informal scoping notes (an email thread, a proposal summary, a call recap) and need them shaped into a formal letter.
• A recurring engagement is up for renewal and the prior-year scope, fees, or responsibilities need restating.
• A non-audit advisory or FP&A project needs clear deliverables, milestones, and a basis-of-fees clause to prevent scope creep.
• A tax engagement needs preliminary scoping with appropriate "verify with a qualified tax advisor" framing on any technical position.

Inputs

Provide whatever you have; the skill flags any gaps it had to assume. Useful fields:

• Parties: practitioner/firm legal name and the client legal entity name (use placeholders if not final).
• Service type: e.g. statutory audit, agreed-upon procedures, bookkeeping, management accounts, tax compliance, transfer pricing review, financial modelling, M&A support, FP&A build-out.
• Scope: what is included, what is explicitly excluded, the subject matter (entity, period, jurisdictions).
• Deliverables: named outputs (report, opinion, memo, model, filing).
• Fees: amount or rate, basis (fixed, time-and-materials, capped, milestone), currency, expenses treatment, VAT/sales-tax treatment.
• Timeline: start, key milestones, target completion, client-dependency dates.
• Responsibilities: client obligations (records, access, representations) and practitioner obligations.
• Standards/framework: reporting framework (IFRS, IFRS for SMEs, local GAAP, US GAAP) and applicable professional standards.

A bundled sample, samples/engagement_parameters_sample.csv, shows the expected field-value format for an obviously fictional advisory engagement. Use it to see how sparse notes map to a complete letter.

How to do it

1. Parse and normalise the parameters. Read each field; record any missing mandatory item (parties, service type, scope, fees basis, framework) and insert a clearly bracketed placeholder such as [CLIENT LEGAL NAME - confirm]. Never silently invent a fee figure, a date, or a legal name.

2. Classify the engagement type, because it drives which standard clauses apply:

   • Assurance (audit/review): agree terms per ISA 210 principles - management's responsibilities for the financial statements and internal control, the applicable reporting framework (e.g. IFRS), and the inherent limitations of an audit (reasonable, not absolute, assurance; ISA 200). Include the expected form of opinion and a statement that fraud may go undetected.
   • Agreed-upon procedures: per ISRS 4400 logic, state that procedures are agreed with the client, that no assurance opinion is expressed, and that the report is restricted to specified parties.
   • Tax: scope compliance vs advisory separately. Frame every technical determination as preliminary - see the tax addendum in the Disclaimer.
   • Advisory / FP&A / modelling: emphasise that outputs are decision-support, that responsibility for decisions remains with management, and that any forecast depends on assumptions provided by the client.

3. Draft the scope and deliverables section. State the subject matter, period, and jurisdictions precisely. List deliverables as named artefacts. Add an explicit exclusions paragraph - the single most effective clause against scope creep. If a deliverable depends on a client input, note the dependency.

4. Draft the fees and basis clause. State amount/rate, currency, and the basis exactly: fixed fee, time-and-materials at stated rates, capped fee, or milestone billing. Specify: out-of-pocket expenses treatment; whether fees are exclusive of VAT or applicable sales/indirect tax (reference the EU VAT Directive 2006/112/EC only where relevant to flag that VAT treatment depends on place-of-supply rules and should be confirmed); billing frequency; and payment terms (e.g. 30 days from invoice). Add a change-order mechanism: out-of-scope work is quoted and agreed in writing before it starts.

5. Draft responsibilities. Two clear lists. Client: maintain accounting records; provide complete and accurate information and timely access; make management judgements and decisions; provide written representations where applicable; designate a responsible contact. Practitioner: perform with professional competence and due care; comply with applicable professional standards and ethics; maintain confidentiality; report within the agreed timeline subject to client dependencies.

6. Draft the timeline / milestones. Convert dates into a short table: milestone, target date, owner. Make client-dependency dates explicit so delays in inputs are visibly the client's milestone, not the practitioner's.

7. Insert the standard generic caveat blocks (firm-neutral wording):

   • Independence and ethics: state compliance with the IESBA International Code of Ethics for Professional Accountants (and local equivalents); for assurance engagements, confirm independence requirements are met and that prohibited non-assurance services will not be provided to the assurance client.
   • Confidentiality: each party keeps the other's confidential information confidential, used only for the engagement, subject to legal/regulatory disclosure obligations and the practitioner's professional rights to retain working papers.
   • Limitation of liability: a generic, balanced clause - aggregate liability limited to a stated multiple of fees or a stated cap (leave the figure as a bracketed placeholder for partner/legal review), excluding liability that cannot lawfully be limited (e.g. fraud, wilful default, death or personal injury). Flag clearly that liability caps must be confirmed with legal counsel and may be restricted by local law and professional regulation.
   • Data protection: a short clause noting personal data is processed in line with applicable data-protection law.
   • Termination: either party may terminate on written notice; fees for work performed to date remain payable.
   • Governing law: bracketed placeholder for jurisdiction and dispute-resolution forum.

8. Assemble the letter in the standard order (see Output), keep tone formal and plain, and surface an Assumptions and gaps note at the top listing every placeholder so the reviewer sees exactly what to confirm.

Output

A single Markdown document, engagement_letter_draft.md, structured as a letter:

1. Header - practitioner name/address, date, client name/address, "Dear [Contact]".
2. Assumptions and open items - a short bracketed list of every placeholder and assumption (this is a draft aid, not part of the final letter; flag it for deletion before issue).
3. Introduction and purpose - one paragraph naming the engagement.
4. Scope of services - inclusions, the framework, and an explicit exclusions paragraph.
5. Deliverables - named artefacts.
6. Fees and basis - amount, basis, expenses, indirect tax, billing, payment terms, change-order mechanism.
7. Responsibilities - client list and practitioner list.
8. Timeline - milestone table (Milestone | Target date | Owner).
9. Standard terms - independence/ethics, confidentiality, limitation of liability, data protection, termination, governing law.
10. Acceptance - signature blocks for both parties with name, title, date.

If the user prefers, also offer the same content as a clause-by-clause checklist they can paste into a firm template.

Quality checks

• Every mandatory field present or flagged with a visible [... - confirm] placeholder; no invented names, fees, or dates.
• The engagement type matches the clause set (e.g. an audit letter references management responsibilities and inherent limitations; an AUP letter expresses no opinion and restricts distribution).
• Fees clause states a clear basis and indirect-tax treatment; payment terms and a change-order mechanism are present.
• Exclusions paragraph exists and is specific.
• Limitation-of-liability cap left as a placeholder for legal review, with carve-outs for liabilities that cannot lawfully be limited.
• No firm-specific or proprietary language, no real client data, no real personal data.
• Plain ASCII punctuation; consistent defined terms ("the Engagement", "the Client", "the Practitioner").
• Tax positions framed as preliminary, never definitive.

Worked example

Using samples/engagement_parameters_sample.csv (a fictional FP&A and budgeting model build for "Aurora Components Ltd", fees on a fixed-fee basis of EUR 18,000 plus VAT, three milestones over eight weeks):

• The skill classifies this as an advisory / modelling engagement, so it emphasises decision-support output, management ownership of decisions, and assumption-dependency of any forecast.
• Scope lists the 36-month driver-based model and excludes statutory audit, tax filing, and valuation work.
• Fees clause states EUR 18,000 fixed, exclusive of VAT (flagging that VAT treatment follows place-of-supply rules to be confirmed), expenses at cost, billed one third per milestone, payable 30 days from invoice, with out-of-scope work quoted separately.
• The milestone table maps the data-room handover (client owner) and two model drafts (practitioner owner) across the eight-week window.
• Liability cap is rendered as [aggregate liability limited to [N] x fees - confirm with legal counsel], and the governing-law field is left bracketed because the sample did not specify it - both surfaced in the "Assumptions and open items" note.

Disclaimer

Disclaimer: This skill is a drafting and analysis aid, not professional advice. It does not provide accounting, audit, tax, investment, or legal advice. All output must be reviewed and approved by a qualified professional before use or reliance.

Engagement letters create binding legal and professional obligations. Liability, confidentiality, governing-law, and data-protection clauses must be reviewed by qualified legal counsel and confirmed against local law and professional regulation before issue. Where tax is in scope, every generated determination or position is a preliminary analysis - verify with a qualified tax advisor - and must never be presented as a definitive position.

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