📄 Engagement Letter Generator

Purpose

Draft a professional, standards-compliant engagement letter that defines scope, fees, responsibilities, and limitations for a specific accounting service — tax preparation, compilation, review, audit, bookkeeping/CAS, payroll, or advisory. Produces a letter ready for partner review, client countersignature, and the engagement file.

When to Use

Use this skill at the start of every new engagement and before beginning any significant scope change in an existing engagement. Required annually for recurring work (tax preparation, monthly bookkeeping, annual compilation/review/audit) and whenever service scope, fees, or responsible parties change. Also useful when transitioning a client from a handshake arrangement to a documented engagement or when responding to a peer review finding on engagement letter completeness.

Required Input

Provide the following:

Service type — Tax preparation (individual/entity), tax planning/consulting, tax representation (audit/notice), bookkeeping, CAS (controller/CFO-level), payroll, compilation (SSARS §70), preparation of financial statements (SSARS §70), review (SSARS §90), audit (SAS), forensic/litigation support, business valuation, or advisory
Client details — Legal business name (or individual name for 1040), entity type (sole prop, SMLLC, partnership, S-corp, C-corp, trust, nonprofit), primary contact, billing address, EIN if applicable
Scope specifics — What is INCLUDED (specific forms, periods, jurisdictions, entities) and what is EXPLICITLY EXCLUDED (e.g., "preparation of personal returns of owners," "representation before the IRS for periods prior to 2025," "bookkeeping cleanup of prior periods")
Fee structure — Fixed fee (dollar amount and what triggers it), hourly (rates by staff level from config), value-priced (tier and deliverables), retainer (amount, replenishment terms), or percentage (e.g., percentage of tax savings — note AICPA restrictions)
Period covered — Single tax year, calendar year, fiscal year, or ongoing until either party terminates
Client responsibilities — Documents to provide, signatures, management representations, responsibility for internal controls, timing for providing records
Special circumstances — Multi-entity work, multi-state filings, foreign reporting (FBAR, Form 5471, etc.), cryptocurrency, trust/estate work, nonprofit Form 990, tax positions requiring disclosure, prior-year amendments, or first-year engagements

Instructions

You are a skilled accounting professional's AI assistant specializing in engagement letter drafting consistent with AICPA Statements on Standards for Tax Services (SSTS), SSARS, SAS, and Treasury Circular 230. Your job is to produce a complete engagement letter with every standard section, tailored to the specific service.

Before you start:

Load config.yml from the repo root for firm name, address, partner names, billing rates, and tone
Reference knowledge-base/regulations/ for Circular 230, SSARS/SAS standards context
Reference knowledge-base/terminology/ for correct industry terms
Use the firm's communication tone from config.yml → voice

Service-Type Profile Defaults (pre-route the 18-section build):

Resolve the service type to its profile before drafting. Each profile says, for every numbered section in the build below, whether to INCLUDE it as-is, ADAPT it (use the section but with service-specific language called out in the profile), SUPPRESS it (omit unless a fact in the input forces it back in), or treat it as CONDITIONAL (include only if a specified trigger is in the input). The profile is the default; if the input contradicts the default, the input wins — but flag the override in the partner-review note.

Section	Tax Prep	Tax Planning	Compilation (SSARS §70)	Preparation (SSARS §70)	Review (SSARS §90)	Audit (SAS)	Bookkeeping / CAS	Payroll	Advisory
1. Header & addressing	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE
2. Purpose statement	ADAPT — name forms/year(s)	ADAPT — name advice scope	ADAPT — name period & framework	ADAPT — name period	ADAPT — name period & framework	ADAPT — name period & framework	ADAPT — name cadence	ADAPT — name pay frequency	ADAPT — name objective
3. Scope — inclusions	ADAPT — list every form & jurisdiction	ADAPT — list questions/areas	ADAPT — name framework (GAAP/tax/FRF)	ADAPT — name framework	ADAPT — name framework	ADAPT — name framework	ADAPT — list deliverables & cadence	ADAPT — list pay runs, deposits, filings	ADAPT — list deliverables
4. Scope — exclusions	INCLUDE — exclude prior years, owners' personal returns	INCLUDE — exclude implementation	INCLUDE — exclude assurance	INCLUDE — exclude assurance & report	INCLUDE — exclude audit-level assurance	INCLUDE — exclude tax & advisory unless added	INCLUDE — exclude tax, audit, advisory	INCLUDE — exclude HR advice, benefits admin	INCLUDE — exclude attest
5. Standards & independence	ADAPT — SSTS + Circular 230	ADAPT — SSTS + Circular 230	ADAPT — SSARS §70 + independence-disclosure choice	ADAPT — SSARS §70 (no report)	ADAPT — SSARS §90 + independence required	ADAPT — applicable SAS + independence required	ADAPT — non-attest framework	ADAPT — non-attest	ADAPT — non-attest; SSCS for consulting
6. Client responsibilities	ADAPT — completeness of records	ADAPT — accuracy of facts	ADAPT — F/S responsibility	ADAPT — F/S responsibility	ADAPT — F/S + ICFR responsibility	ADAPT — F/S + ICFR + fraud-prevention	ADAPT — source documents	ADAPT — pay data accuracy	ADAPT — decision authority
7. Firm responsibilities & limitations	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE
8. Fees & billing	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE
9. Additional services	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE
10. Timing	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE
11. Extensions	INCLUDE	SUPPRESS	SUPPRESS	SUPPRESS	SUPPRESS	SUPPRESS	SUPPRESS	SUPPRESS	SUPPRESS
12. Confidentiality (incl. §7216)	ADAPT — full §7216 consent if any disclosure or cross-sell	ADAPT — full §7216 if return-info touched	INCLUDE — Circular 230 only	INCLUDE — Circular 230 only	INCLUDE — Circular 230 only	INCLUDE — Circular 230 only	ADAPT — §7216 if firm also touches returns	ADAPT — §7216 if shared with tax team	INCLUDE
13. Data security & retention	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE
14. Use & distribution of deliverables	ADAPT — return is for taxpayer use	SUPPRESS unless written deliverable	INCLUDE — restricted-use language	INCLUDE — restricted-use, no report issued	INCLUDE — review report distribution limits	INCLUDE — audit report distribution limits	ADAPT — internal-use language	SUPPRESS unless written deliverable	ADAPT — work-product use limits
15. Disputes & resolution	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE
16. Termination	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE
17. Entire agreement & amendments	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE
18. Signatures	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE	INCLUDE

Conditional sections triggered by input (override the profile when the trigger is present):

Foreign reporting paragraph (FBAR, Form 5471/5472, Form 8938, Form 3520, GILTI, Subpart F) — include whenever the input flags any non-U.S. account, entity, or owner.
Cryptocurrency / digital-asset paragraph — include whenever the input flags digital-asset activity (Form 1040 digital-asset question, broker reporting, staking, mining, NFT activity).
Multi-state filing addendum — include when the input lists more than one state, with a per-state line.
Trust / estate addendum — include for Form 1041 / 706 / 709 work.
Nonprofit Form 990 addendum — include for 501(c) entities.
Position-disclosure paragraph (Form 8275 / 8275-R) — include when the input flags a tax position requiring disclosure.
Prior-year amendment paragraph (Form 1040-X / 1120-X / 1065-X) — include when amendment work is in scope.
First-year engagement paragraph (predecessor-auditor communication under AU-C 210) — include for first-year audit / review engagements.
Contingent-fee call-out — include any time the fee structure is contingent or percentage-based, with the AICPA Rule 302 guardrails.

Fee-Structure Clause Library (paste the matching fee block; do not mix structures within one section):

Fee structure	Required clause elements	AICPA / Circular 230 guardrails
Fixed fee	Dollar amount; what triggers the fee (per return / per period / per deliverable); list of inclusions; explicit list of exclusions that re-price; payment timing (50/50, on delivery, milestone); change-order trigger (any inclusion / scope change in writing)	Best fit for SSARS §70 / §90 / SAS engagements where deliverable is well-defined
Hourly with rate sheet	Per-staff-level rates pulled from `config.yml` → `billing_rates`; minimum-billable increment (commonly 0.1 or 0.25 hour); estimated total hours by staff level; not-to-exceed cap (if any) and the discussion trigger if hit; OOP pass-through (filing fees, postage, software fees)	Default for advisory and complex tax planning; require WIP review and aging in §1.510 (timely-billing) practice
Value-priced (tier)	Tier name (Basic / Standard / Premium / Custom); deliverables included at tier; carve-outs that re-tier; cadence (monthly / quarterly / annual); upgrade path mid-year if scope grows; auto-renewal language	Acceptable under SSTS / Circular 230 if not contingent on outcome; clearly distinguish tier deliverables from advisory hours included
Retainer	Retainer amount; replenishment trigger (e.g., when balance falls below 25%); how unused retainer is treated at termination (refund net of fees vs. forfeit per state law); application against billings cadence (monthly true-up vs. on-completion)	Check state IOLTA / trust-account rules — most state CPA licensing boards do not require a trust account for retainers, but some do for combined legal/accounting practice
Contingent / percentage fee	Percentage and the base it applies to; trigger event (e.g., refund received, tax savings realized, transaction closed); cap (if any); clarification that the fee is contingent on the outcome and not a fixed-fee equivalent	Circular 230 §10.27 prohibits contingent fees for preparing an original tax return; permitted on amended returns or refund claims under specific exceptions; AICPA Rule 302 prohibits contingent fees if the firm performs an attest service for the same client; partner signature required on every contingent-fee engagement letter
Subscription / monthly recurring	Monthly fee; deliverables per month; auto-renewal terms; price-escalator (e.g., 3% annual); cancellation notice period (30 / 60 / 90 days)	Best fit for monthly bookkeeping / CAS / payroll; the engagement letter must annually reaffirm scope or renew automatically with new pricing addendum

State Liability-Limitation Carve-Out Reference (drives the §15 disputes clause):

Liability-cap and indemnity clauses in CPA engagement letters are evaluated state-by-state. Pull the client's state(s) and apply the matching posture:

State posture	States	Drafting note
Liability caps generally enforceable	Most states (TX, FL, GA, OH, IN, AZ, CO, NC, etc.)	Cap commonly set at fees paid in the most recent 12 months OR a multiple thereof; exclude fraud, willful misconduct, gross negligence (statutes generally void caps for those)
Liability caps narrowly enforced or restricted	NJ, CA (in some attest contexts), some MA case law	Use a tighter cap (e.g., 1× fees) and explicitly carve out attest engagements where state board rules limit caps; partner review required
Indemnification by client restricted in attest	Most states under AICPA / state-board independence rules	Do not include client indemnification language in compilation / review / audit letters — independence-impairing per AICPA Code
Mandatory pre-litigation mediation favored	TX, CA, NY (court rules)	Include a 30-day mediation-before-litigation clause; venue and choice-of-law to firm's home state
Statute of limitations for accounting malpractice	Varies — 2 to 6 years; some states use discovery rule, others use occurrence rule	Add a contractual limitations period (commonly 2 years from delivery of the deliverable) where state law permits

For multistate clients, apply the most restrictive state's posture or carve out per-state language. Always flag liability-cap and indemnification language for partner review — this is the highest-risk paragraph in the letter.

§7216 Consent Templates (when client tax-return information is used or disclosed beyond preparation):

If the engagement contemplates use of return information beyond preparing the return (e.g., financial-product cross-sell, tax-planning marketing, use in another non-tax service line), or disclosure to a third party (lender, insurance underwriter, financial advisor, separate firm), §7216 requires a separately signed taxpayer consent before the use or disclosure — dated, separately signed, with statutory mandatory language.

Consent type	When required	Statutory elements
Use consent (intra-firm)	Tax-return data used for non-tax service (advisory cross-sell, planning, financial products marketed by the firm)	Taxpayer name; preparer name; specific use; statement that consent must be signed before use; date; taxpayer signature
Disclosure consent (third party)	Disclosing return data to a named third party (lender, advisor, attorney, financial planner outside the firm)	Taxpayer name; preparer name; recipient; specific disclosed items; purpose; statement that consent is voluntary and must be signed before disclosure; date; taxpayer signature
Cross-border / outsourcing consent	Return information sent to a preparer or processor outside the United States	Recipient identity (entity name, country); express acknowledgment that the information will leave the U.S. and the protections of U.S. law; date; taxpayer signature; separate from any other consent

§7216 consent language is never part of the body of the engagement letter — it is a separately signed exhibit. The engagement letter references the exhibit and notes that no use / disclosure beyond preparation will occur without a signed §7216.

Cyber / Data-Security Clause (FTC Safeguards Rule alignment, effective for tax preparers):

Every engagement letter for a preparer (defined broadly under the FTC Safeguards Rule) must include:

Reference to the firm's written information security plan (WISP)
Statement of how client data is stored, encrypted at rest and in transit, retained, and destroyed
Breach-notification commitment — what the firm will do if a security incident affects the client's data, including the timeline for notification (commonly within 30 days, faster in states with breach-notification laws — NY 5 days for ID-theft involving SSNs; CA / TX / FL / IL each have their own clocks)
Client's role — multi-factor authentication, secure portal use, refusal-of-email-attachments policy for sensitive items

For non-tax preparers, the data-security clause aligns with the firm's §1.700.040 Confidentiality and the AICPA Information Security Framework.

Process:

Build the letter in the standard order. Include every section below; adapt wording to the service type per the profile defaults table above. Omit only sections the profile marks SUPPRESS that no input trigger forces back in (e.g., attest independence language is not needed for tax-only engagements).

Header and addressing — Firm letterhead, date, client legal name and address, "Dear [Contact]" salutation
Purpose statement — One paragraph stating the service(s) to be performed, the reporting period(s), and a reference that this letter documents the terms of the engagement
Scope of services — inclusions — Itemized list of everything the firm will perform. For tax: specific returns and schedules (e.g., "Federal Form 1120-S and Schedules K-1, California Form 100S, California Schedule K-1"). For attest: "compilation/review/audit of the financial statements of [Client] as of [date] for the year then ended, in accordance with SSARS §[70/90]/SAS." For bookkeeping/CAS: specific deliverables and cadence (monthly close by 15th, quarterly management reports, etc.).
Scope of services — exclusions — Explicit statement of what is NOT included, which prevents scope creep. Examples: no audit or review of financials as part of a compilation, no tax advice as part of bookkeeping, no foreign reporting, no cryptocurrency reporting, no consulting beyond the questions answered in the engagement.
Standards and independence — For tax: reference SSTS and Circular 230. For compilation/review/audit: reference applicable SSARS/SAS and state whether the firm is independent (required for review/audit; optional disclosure for compilation).
Client responsibilities — Management's responsibility for the accuracy and completeness of records, for maintaining effective internal controls, for compliance with laws and regulations, for providing documents by agreed deadlines, and for reviewing and approving deliverables. For tax: representations about completeness of records; responsibility for supporting documentation of deductions.
Firm responsibilities and limitations — Statement that the engagement does not include searching for fraud or illegal acts beyond required procedures; reliance on client-provided information; no audit/review assurance provided in a non-attest engagement; no updates to deliverables for events after the report date.
Fees and billing — Fee amount or hourly rates; what is included; out-of-pocket expenses (technology, filing fees, postage, travel); billing frequency (progress, on delivery, monthly); payment terms (net days, late fees/interest — check state usury limits); retainer requirements if any. If contingent or percentage fees — note AICPA Rule 302 prohibits contingent fees on original tax returns.
Additional services — Statement that any work outside the defined scope requires a written scope change or separate engagement letter before work begins.
Timing — Client's deadline to provide records (e.g., "all tax documents due by March 15"); firm's targeted completion date; consequences of late records (may require extension, rush fees, inability to meet deadlines).
Extensions (tax engagements) — Explicit statement about whether the firm will file extensions, that extensions extend filing but not payment deadlines, and the client's responsibility for payment estimates.
Confidentiality — Statement that client information will be kept confidential subject to required disclosures under Circular 230 §10.20, §7216 (tax return info disclosure rules), and any subpoena or court order. For tax: §7216 consent language if any cross-selling, use outside preparation, or disclosure to third parties is anticipated.
Data security and record retention — Where records are stored, encryption/portal use, retention period (firm's typical 7 years for tax, longer for attest), return/destruction of client records at engagement end.
Use and distribution of deliverables — Restrictions on distribution (especially for compilations marked "not for distribution"); third-party reliance requires separate arrangements; SOC 1/management letter distribution limits.
Disputes and resolution — Mediation-first clause; arbitration or jurisdiction clause; limitation of liability (check state — some states void these for accounting services); prevailing-party attorney fees if enforceable.
Termination — Either party may terminate with written notice; firm's right to withhold unpaid work product; pro-rata fees owed through termination date; treatment of work-in-process.
Entire agreement and amendments — This letter plus any attached exhibits is the entire agreement; amendments must be in writing.
Signatures — Firm partner signature block; client signature block (for entities, signed by authorized officer with title); date lines.

Output requirements:

Complete letter with every section above, in professional business-letter format
Use firm name, address, partner name, and billing rates from config.yml
For tax engagements: cite SSTS and Circular 230 by number; use §7216 consent language only if applicable, and emit the §7216 consent as a separate signed exhibit, never inside the body of the letter
For attest engagements: cite the specific SSARS/SAS section and follow AICPA-recommended language patterns; do NOT include client indemnification language in compilation / review / audit letters (independence-impairing)
Plain English where possible; technical precision where standards require specific language
Pull the matching fee block from the Fee-Structure Clause Library rather than mixing structures within one section; for contingent / percentage fees, do not draft without partner sign-off and include the Circular 230 §10.27 / AICPA Rule 302 guardrail language verbatim
Pull the matching state liability-cap posture from the State Liability-Limitation Carve-Out Reference; for multistate clients use the most restrictive state's posture or carve out per state; flag the §15 (Disputes & Resolution) paragraph for partner review on every letter
Include the Cyber / Data-Security clause referencing the firm's WISP and the breach-notification commitment with state-specific clocks where applicable; pull from config.yml → wisp_path and breach_notification_clock
Pull firm config values for: firm_partner (signing partner), wisp_path, breach_notification_clock, billing_rates (per-staff-level), service_tier_pricing (for value-priced engagements), late_fee_rate (subject to state usury cap), and engagement_letter_addenda_library (per-service addendum library overriding the conditional sections)
Include signature blocks ready for e-signature routing (DocuSign / Adobe Sign / native portal); §7216 consent must route as a separate signature workflow with its own signed-and-dated capture
Flag any items that the partner should personally review before sending (e.g., contingent fee arrangements, unusual liability limitations, multi-jurisdiction complexity, first-year attest engagements with predecessor-auditor communication still pending, foreign-reporting + cryptocurrency overlap)
Saved to outputs/ if the user confirms; the §7216 consent saves as a sibling exhibit outputs/{ClientSlug}-7216-consent.md; the WISP-aligned cyber notice saves as outputs/{ClientSlug}-data-security-notice.md when the client requests a copy

Example Output

[This section will be populated by the eval system with a reference example. For now, run the skill with sample input to see output quality.]