A letter of engagement is the written agreement between a professional practice and its client that sets out what work will be done, on what terms, for what fee, and how either side ends it. It is called a letter because it is addressed to the client and written to be read by them, and it becomes a contract the moment they accept it. Accountants, bookkeepers, lawyers, surveyors and consultants all use one, and the reason the accounting profession is unusually insistent about it is that accounting work is easy to assume into existence: a client who asked one question in March will believe the practice took responsibility for the answer in September.
What it settles, in the order that matters
Scope first, because everything else depends on it: the services by name and period, and then the services explicitly excluded. Then who is responsible for what, since professional work runs on information the client controls. Then fees, billing and the trigger for a change. Then termination, records and confidentiality. A letter that settles those four is doing its job even if it is one page; a letter that is ten pages and vague about scope is doing none of it.
Who signs it, and when
The practice sends it and the client signs, before work starts, which is the part most often skipped and most often regretted. For a company client, the signatory should be somebody with authority to commit it, which in a small business is the owner or a director rather than the office manager who supplied the records. Reissue when the work, the fee or the responsible people change, and at least once a year on a recurring engagement, so the version in force describes the engagement that is actually running.
Why it is the first document in the client's file
Everything a practice does for a client refers back to what was agreed: which records to request, what the monthly pack contains, what falls outside the fee, how long documents are kept and who they belong to at the end. If the letter lives in an email thread, all of those questions are answered by memory. If it lives against the client record with its signature date and version, they are answered by looking. That is a filing decision more than a legal one, and it is the reason a practice's client file starts with the engagement rather than the first bank statement.
What it is not
It is not a proposal, which sells the work and can be withdrawn; it is not a quote, which prices it; and it is not a substitute for professional judgement about whether to accept the client at all. It also does not protect a practice from work it did badly. What it does is remove the ambiguity about what the practice agreed to do, which is where most fee disputes and most professional complaints actually begin.
Questions people ask about what is a letter of engagement
Is a letter of engagement legally binding?
Once accepted, yes. It is an ordinary contract that happens to be written as a letter, and the informal format is a convention for readability rather than a limit on its effect.
What is the difference between a letter of engagement and an engagement letter?
Nothing. Both names are in common use for the same document, with letter of engagement more common in the UK and Commonwealth and engagement letter more common in the United States.
What happens if work starts without one?
The engagement still exists, defined by whatever both sides can later show they agreed. That is the problem: the scope becomes a question of recollection, and recollection favors whoever needed more work done.
How long should it be kept?
For the life of the engagement and well beyond it, because a complaint or a fee dispute can arrive years after the work. Keep the signed version, dated, with the client record rather than in an inbox.