An engagement letter is a starting point, not proof of the service clients actually receive. A buyer should compare current terms with job records, invoices, correspondence and staff explanations for a representative client sample. The aim is to identify unwritten recurring work, services that are billed but not delivered, unclear responsibilities and client expectations that could survive the seller’s departure.

Do this client by client, not by reading the practice’s standard template once. The result should be a service-scope register that shows what was promised, what was delivered, what was charged and what must be re-engaged after completion. That register helps test workload, pricing, retention risk and the operating plan without assuming the seller’s historic habits will transfer.

Why the written terms matter—but are not enough

For members in public practice, APES 305 requires terms of engagement to be documented and communicated and addresses recurring engagements (APESB). For registered tax and BAS agents, the Tax Practitioners Board (TPB) describes an engagement letter as the start of continuing communication about what will be done, by whom, how, when and for what cost. The TPB also says the existence of a letter alone does not establish compliance with the practitioner’s obligations (TPB).

That distinction is commercially important. A signed letter may list annual accounts and income tax returns, while the team also answers payroll questions, prepares management reports, maintains software files and attends lender meetings without separate approval. Conversely, a package may mention quarterly reviews that job records show were rarely completed. Either gap affects the value and capacity a buyer is assessing.

Build the client population before sampling

Obtain the complete client master and connect it to recurring invoices, time or job records, work in progress and the document-management system. For every client entity, capture:

  • engagement date, acceptance evidence and latest variation or renewal;
  • legal client entity or entities and the principal contact;
  • promised services, express exclusions and delivery frequency;
  • fixed, subscription, hourly and out-of-scope fees;
  • responsible partner, preparer, reviewer and any third-party provider;
  • actual jobs completed over at least the latest full service cycle;
  • write-offs, fee disputes, complaints and unusual concessions; and
  • termination, document-return and notice provisions.

The client population should reconcile to the fee ledger. Investigate clients with revenue but no located terms, one letter covering an unexplained group of entities, inactive clients still in the system, and engagement records that do not match the invoiced entity.

Select a sample by risk rather than convenience. Include large and small clients, different service packages, older relationships, recently re-priced work, groups with several entities, low-margin files, outsourced jobs and clients handled mainly by the seller. Add every material exception found during the review; a fixed sample should not conceal a pattern.

Reconcile the letter to actual delivery

For each sampled client, walk one complete annual or recurring cycle. Read the signed terms and later emails, then inspect job codes, workpapers, lodgements, invoices, calendar entries and material correspondence. Ask the staff member who performs the work to explain the real process.

Use a simple comparison table:

Test Evidence to compare What a gap may indicate
Scope Engagement schedule, job history and deliverables Unpriced work or a service not being performed
Frequency Stated timetable, recurring jobs and lodgement dates Hidden workload peaks or missed client expectations
Fees Pricing clause, invoices, credits and write-offs Stale pricing, informal discounts or scope creep
Responsibilities Client obligations, staff workflow and follow-up records Practice doing work assumed to be client-supplied
Provider Named practitioner or team, actual preparer and reviewer Seller dependence or an undisclosed third party
Outputs Promised reports, advice and meeting records Deliverables that are informal, inconsistent or absent

Classify differences as supported variation, unwritten recurring service, undelivered written service, unclear responsibility or one-off work. Then quantify their annual hours, direct costs, review time and fees. Do not automatically treat all additional work as recurring value: some may be seller goodwill, remediation or activity the buyer should stop.

Test fees, exclusions and responsibilities

The TPB recommends that engagement terms identify the client entities, describe included and expressly excluded work, explain respective responsibilities, set the fee basis and address termination and document return (TPB). Test each of those areas against practice behaviour.

Look for vague phrases such as “general business advice”, “ongoing support” or “as required”. Determine what clients believe these mean, who responds, how often and whether the package price covers the work. Review whether tax planning, payroll, bookkeeping corrections, software support, audit assistance, finance schedules or correspondence with regulators are included, separately quoted or simply absorbed.

Client responsibilities matter too. If the letter requires clean records by a deadline but the practice routinely reconstructs accounts from incomplete material, the buyer inherits a larger task than the written scope suggests. Measure chasing time, rework and senior review rather than assuming the process will improve immediately after completion.

Check permissions and who provides the service

Engagement terms can also reveal whether the delivery model matches client permission. Under the tax-practitioner confidentiality rule, client information generally cannot be disclosed to a third party without client permission unless a legal duty applies. The TPB says communications seeking permission should identify the disclosure and the entities with access; it treats contractors, other entities in some service structures and cloud providers as potential third parties depending on the facts (TPB).

Compare the wording with the actual use of contractors, offshore teams, related service entities and platforms. This review does not replace privacy or professional advice, but it can identify which clients need specialist attention or renewed permission before the buyer adopts a different team, entity or technology stack.

Separate client expectation from contractual transfer

Ask legal advisers whether each engagement is assigned, novated, terminated or replaced under the proposed transaction structure. Do not assume that buying a client list transfers an appointment, client consent or the right to access files. In an asset purchase, the service provider may change; in a share purchase, the contracting entity may remain while ownership, personnel or delivery arrangements change. The documents and facts determine the result.

Plan the client communication and acceptance process alongside the sale agreement. The TPB recommends regular review of recurring arrangements and identifies changes in scope, client circumstances, ownership or structure, and third-party recipients as reasons a new or revised agreement may be expected (TPB). Set out who contacts each client, when new terms are issued, what happens if acceptance is delayed, and when data and work can move.

Use decision gates, not a document-completeness score

A high percentage of signed letters is not enough. Before attributing value to the recurring fee base, ask:

  1. Scope: Can each material service and exclusion be identified?
  2. Delivery: Does completed work support the claimed service frequency?
  3. Economics: Do fees cover the actual labour, review and technology required?
  4. Authority: Are client entities, providers and information-sharing permissions clear?
  5. Transition: Is there a workable path to client communication, acceptance and continued delivery?

Escalate recurring gaps into the forecast and transaction workstream. Possible responses include further sampling, pre-completion remediation, revised staffing, re-pricing after an appropriate client process, specific warranties or retention mechanics, or a decision not to attribute value to unsupported revenue. Lawyers and transaction advisers should determine drafting and remedies; the diligence matrix supplies evidence rather than a legal conclusion.

When specialist advice is needed

Have a lawyer advise on interpretation, assignment or novation, client consent, privacy, confidentiality, liability limits and sale-agreement protections. A tax or professional-standards adviser can assess practitioner obligations, while accounting and valuation advisers can test workload, margins and sustainable earnings. Cyber specialists may be needed where new providers or systems will receive client information.

Sources

Disclaimer

This article provides general information only. It does not constitute legal, tax, accounting, financial, credit, valuation or other professional advice. Circumstances differ. Obtain advice from appropriately qualified advisers before acting or entering a transaction.