Engagement Letters: More
Communication, Less Liability
Presented by:
Gary H. Barnes, Esq.
Gary H. Barnes Professional Association
Burlington, Vermont –Venice, Florida
Copyright 2011, Gary H. Barnes PA. All Rights Reserved.
802-557-0377 941-2759967
ghb@ghbpa.com
Introduction
 Why Accountants Should Lose Sleep At
Night
– Public Perception
– Juror Perception
– Plaintiff Lawyers Perception
– Accountant As Defendant Still Standing
TRUE OR FALSE
 In a recent survey, more than half of
those polled said they believe
accountants “often” manipulate
numbers to say what their clients want.
The Big Problem
 What was the accountant supposed to
do?
 Write-ups: the most dangerous
engagements
 The problem with judicial truth: Who is
telling the truth?
Communicate Better: Clients
 Importance of better communications
 Consider the audience
– Direct Talk With Client
– Letter To Client
– Engagement Letter
Clients/Audience (continued)
 Management Representation Letter
 Enclosure Letter for Attest Report
 Enclosure Letter for Tax Return
Impediments to communication
 Why don’t accountants communicate
better?
– “numbers people” vs. “words people”?
– Dislike of confrontation?
– Fear of Losing Client?
– Fear of Saying the wrong thing?
Communication Habits
 Active Listening
 CYA Correspondence
Drafting Opportunities-Engagement
Letter
 Drafting opportunities
–
–
–
–
Scope of work
Willingness to do more for a fee
Client responsibilities
Client truthfulness clause
More Opportunities-Engagement
Letter
 Willingness To Modify Engagement Letter
 Fiduciary Disclaimer Clause
 Economic Loss Rule
 Integration Clause
 Limitation Of Liability Clause
 Third-party Liability Clause
 Dispute Resolution Clause
True or False?
 It is unethical to include in an
Engagement Letter an agreement to
arbitrate instead of going to court for
claimed malpractice?
Other Drafting Opportunities
 Enclosure Letters
– Limited Scope of work
– Client responsibilities vs. Accountant
Scope of Work
– Client Truthfulness
– Client Duty To Review
– Not For Non-Client Use
Communicate Better: Third Parties
 Buyers of a business
 Third party lenders
Drafting opportunities
 Known Users
– engagement letter should require third
party agreement
– Third party agreement should describe
limitations of accountant’s engagement
True or False?
 Accountants are always bound by the
terms of loan agreements, that call for
an accountant to take responsibility
for periodic testing of collateral
sufficiency.
Drafting Opportunities for Known
Users (continued)
 describe lender responsibilities
 describe management responsibilities
 secure lender’s guaranty of managements
obligations
 dispute resolution clause
Drafting Opportunities -Unknown
Users
 language tying user to engagement letter
 language requiring accountant consent
 language explaining materiality
What’s Next
 How to implement what you learned
today.
 In House Training-Active Listening and
CYA Letters
 Standardization: Form Letters
– Engagement Letter
– Enclosure Letters
– Management Representation Letters
 Adopt Multiple Point of Contact Rule
Questions?
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