Client Engagement Letter Renewal

Retrieve the signed letter from Karbon, TaxDome, or your document management system. Note the original effective date, expiration, fee structure (fixed-fee vs. hourly vs. value-based), and any change orders signed mid-year. Month-to-month conversions and unsigned addenda are common gotchas.

Identify whether this is a tax, bookkeeping, preparation, compilation, review, audit, or advisory engagement. Compilations and reviews trigger SSARS independence considerations; cross-selling bookkeeping to a review client is a common independence breach.

Required for attest clients (compilation with assurance, review, audit). Confirm no team member holds a financial interest, no immediate-family employment with the client, and no unpaid prior-year fees that would impair independence under AICPA ET 1.230.010. Document the conclusion in the permanent file.

Pull budgeted vs. actual hours from your practice management system (Karbon, Canopy, Jetpack). Flag realization below 75% — that's a sign of scope creep, fee under-pricing, or staff inefficiency that needs to be priced into the renewal.

List items the client now needs that weren't in last year's letter — new entities, multi-state sales-tax filings, 1099 prep, R&D credit work, PTET elections. Tax-season scope creep ("while you're at it…") is the most common cause of realization decay.

Partner-led call covering: what worked last year, pain points, anticipated entity or transaction changes (new state nexus, M&A, financing event), and any controller / bookkeeper turnover on the client side that affects the PBC list.

Only fires when scope materially changed. Itemize the added or removed services with hour estimates so the new fee structure is defensible during partner review and during a fee conversation with the client.

Update the prepared-by-client list and deliverable schedule for the new period. Tie deliverable dates to filing deadlines (Mar 15 for 1120-S/1065, Apr 15 for 1040/1120) so PBC items have a real-world due date and not a vague "by year-end."

Build the budget bottom-up: partner / manager / senior / staff hours at current standard rates against the refreshed scope. Layer in firm overhead and target realization (typically 80-90%). Compare the result to last year's actual fee plus inflation.

Most firms apply 3-7% annually to standard rates. Confirm whether this client is on a multi-year fee freeze from a prior negotiation. Document the reasoning if you deviate from the firm-standard increase.

Decide on fixed-fee vs. monthly retainer vs. hourly. For tax-only clients, 50% retainer at engagement and 50% on filing is standard. For monthly bookkeeping, ACH on the 1st reduces collections workload. Specify late-fee terms (typically 1.5%/month after 30 days).

Use the AICPA-aligned template appropriate for the engagement type (preparation / compilation / review have different required disclaimers). Update the scope, fees, payment terms, term length, and effective date sections. Carry forward indemnification and dispute-resolution clauses from prior year unless legal flagged a change.

Compilation engagements need the SSARS 21 (AR-C 80) standard disclaimer; review engagements need AR-C 90 language. Audits need the AICPA AU-C 210 paragraph addressing management's responsibilities for ICFR. Wrong template language is a peer-review finding.

Required for paid preparers under IRS Pub 4557 and the FTC Safeguards Rule. Confirm the data-security and breach-notification language matches your current WISP. Reference the client portal (TaxDome, SmartVault, Liscio) as the required transmission channel — no SSNs or K-1s by personal email.

Partner reviews scope, fee, independence conclusion, and any deviation from firm-standard terms. For attest clients, the engagement partner sign-off is required before the letter goes out.

Required when the client modified indemnification, liability cap, governing law, or arbitration language. Most firms have a $500K or 1x-fee cap as standard; pushback on the cap goes through the firm's general counsel or risk-management partner.

In Karbon / Canopy / TaxDome, update the client's contract dates, fee schedule, and recurring job templates so the next year's work creates against the new terms. Failing this means staff bill against last year's budget and realization tracking goes wrong.

Practice Ignition bundles the letter with the ACH authorization for fee collection — preferred for monthly retainer clients. DocuSign or Adobe Sign works for one-off tax engagements. Cover note should restate the fee, term, and start date.

Track whether the client signed, came back with negotiation points, or declined to renew. A declined renewal triggers the client-offboarding workflow — final-deliverable handoff, records retention, and disengagement letter.

Only fires on a declined renewal. Letter confirms the engagement end date, identifies pending deliverables and final invoice, references the records-retention schedule (typically 7 years), and offers to transmit the working file to the successor firm upon their AICPA-standard predecessor request.

Save the fully-executed PDF to the permanent file in your DMS, attach it to the client record in the practice management system, and notify the engagement team that work can begin. Unsigned letters mean unbilled hours — partners should block job creation until this step is complete.