APES 305: Agreeing Terms of Engagement

Establish Which Engagement Terms Apply

Identify the accounting member’s client and the professional service before choosing the engagement terms. Record the entity receiving the service and the person authorised to instruct you. A lawyer forwarding records may be an instructing intermediary, so establish whose agreement you need.

The 2024 APES 305 standard supplies the general framework alongside applicable law and specialised standards. An audit engagement has its own requirements under ASA 210. Compilation work also needs the relevant APES 315 requirements. A solicitor’s retainer and costs disclosure address a separate professional relationship.

For example, distinguish an instruction to organise bank records from one to provide a forensic accounting opinion. The same statement bundle can support either instruction, but the agreed professional work differs.

Document and Communicate the Agreed Service

Describe the actual work and obtain the client’s confirmation that they understand the terms. An engagement document can be an appropriate electronic communication as well as a letter. Retain the version sent and the client’s response.

CPA Australia’s APES 305 guidance identifies the matters to consider for the individual engagement. Use these practical prompts when preparing the document:

• State the purpose and objective, including any relevant assurance boundary.
• Identify the accounts, entities and periods covered, with the information the client must supply.
• Describe the output, delivery expectations and intended recipients or uses.
• Allocate responsibilities between the member, client and external contributors.
• Explain the fee calculation and billing arrangements, including how additional work is authorised.
• Address ownership of documents and data, with any relevant lien policy.

Make limitations concrete. “Review supplied statements for Entity A” leaves unanswered whether related entities or an expert report are included. State that scope explicitly. A generic model letter cannot establish that the client understood a different service discussed during a call.

Address Confidential Information and External Services

Apply the confidentiality duties in APES 110 when handling client information. Identify external access before sending records, including any client restriction on overseas processing.

APES 305 paragraph 3.6 requires written documentation and client communication of an outsourced provider’s details, work location and the service’s nature and extent. Paragraph 3.7 gives guidance for cloud computing that is not an outsourced service. It addresses the provider, geographical location and how confidential information is stored. Preserve that distinction between a mandatory requirement and guidance.

APES GN 30 helps assess whether the arrangement is outsourcing a material business activity. It also addresses provider competence, confidentiality controls and the member’s retained responsibility. Cloud storage and outsourced professional work require assessment of their actual functions.

In a hypothetical investigation, an external provider prepares a bank-data ledger for the accountant’s analysis. Identify the source coverage and expected fields in that provider’s instruction. Establish the actual processing locations and information safeguards before describing them to the client. Assign the professional interpretation and final output to the responsible member. Receiving a ledger does not transfer that engagement responsibility.

Review Recurring and Changed Engagements

Review a recurring engagement when circumstances change, rather than assuming last year’s terms cover the next instruction. CPA Australia identifies changes in scope, ownership, services and legal or professional requirements among the reasons to consider amendment or reissue.

Consider a hypothetical annual review of one company’s bank transactions for internal management use. The next instruction adds two related entities and asks for a report intended for litigation. Both the subjects and intended use have changed.

Compare the new instruction with the existing document. Revise or reissue the terms to identify the added entities, reporting purpose, responsibilities and fee basis. Obtain confirmation of the changed understanding before proceeding with the expanded work. Preserve the original terms and record when the new instruction arrived. Do not backdate acceptance to make earlier work appear authorised.

Check Any Liability-Scheme Wording

Establish whether the practice participates in an applicable professional standards scheme before inserting a liability statement. The Professional Standards Councils’ scheme register identifies separate schemes and their instruments. Membership of an accounting body alone does not establish the scope of a particular practice’s protection.

For participating members, APES 305 requires disclosure in accordance with the applicable law or regulations. The Councils explain the prescribed disclosure and document requirements. Confirm participation, jurisdiction and the governing scheme before settling the practice’s wording.

A clause in an engagement letter does not itself create scheme coverage or a universal liability cap. Use a practice-specific document that reflects the actual scheme and legal requirements.

Verify the Terms Against the Work Accepted

Compare the current instruction with the communicated terms before further work. Check the client and authority, service scope, intended output, external inputs, fee basis and responsibilities still awaiting agreement.

If the document covers one entity but the working files now include its group, refer that mismatch to the responsible member. Record whether the additional work is accepted, excluded or awaiting revised terms. A completed form records information. The member must decide which professional service the practice accepts and communicate that decision to the client.