When to update an engagement letter
When an existing client needs a new engagement letter, how ISA 210 treats recurring engagements, and how the new letter is drafted, accepted and signed.
By Achekam · · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
The engagement letter on file is dated six years ago. It describes a compilation for a close corporation that has since converted to a company, mentions a director who resigned, quotes a fee nobody has charged since, and says nothing about the payroll the firm took on three years ago. Everyone knows what the firm does for the client. The only document that records it says something else.
Letters go stale quietly, and the cost only shows when there is a dispute about scope, a claim, or an inspection that asks for the terms of this year's engagement. This article covers when an existing client needs a new letter, how the standards treat recurring work, and how the replacement is drafted, accepted and signed in Achekam.
Changes that call for a new letter
Some changes always need new terms:
- A different engagement. A client moving from compilation to independent review, or from review to audit, needs a letter for the new engagement; the old one describes different work and different responsibilities.
- New or dropped services. Adding payroll, tax returns or monthly bookkeeping, or stopping one, changes the scope and the fee.
- A change in the client. A conversion, a merger, new owners, a new parent company, or new people in charge of governance who never agreed the original terms.
- A change in the framework or the law. A move from IFRS for SMEs to full IFRS, or new reporting or tax requirements that change what the firm must do.
- A change in fees or terms. A fee basis that has changed, new payment terms, or revised limitation clauses.
Other signals are softer but worth acting on: a client who seems to misunderstand what the firm does, a request for work the firm has been doing informally, or a new engagement partner who wants the terms restated.
Recurring engagements
For recurring audits, ISA 210 asks the auditor to assess whether circumstances require the terms to be revised, and whether the entity needs to be reminded of the existing terms. Many firms send a new audit letter every year as a matter of policy; others send a short confirmation that the existing terms continue. Either approach is defensible if the assessment is made and recorded. ISRE 2400 (Revised) takes a similar line for recurring reviews.
The text of ISA 210, together with the review and related services standards, is in the IAASB's 2026 Handbook, which contains every International Standard on Auditing and the review, assurance and related services pronouncements.
For non-assurance work such as bookkeeping or tax, no auditing standard sets the rhythm, but the same logic applies. A letter that no longer describes the work protects nobody. A practical rule is to review every client's letter at the start of each financial year, and replace it whenever one of the changes above has happened.
| Situation | Action |
|---|---|
| Recurring audit or review, nothing changed | Record the assessment; send a reminder or a new letter under firm policy |
| Engagement type changes | New letter for the new engagement |
| Services added or dropped | New letter covering the new scope |
| New owners or governance | New letter agreed with the people now responsible |
| Fee basis changes | New letter or a signed addendum |
Drafting within the guardrails
A new letter in Achekam goes through the same checks as the first one. AI can draft the clauses, never the fees, and a person reads and saves the draft. Achekam will not send a letter whose wording breaks the professional guardrails, and for audits and reviews it will not send one before a partner has reviewed it.
When updating, resist the temptation to start from the old letter and patch it. Start from the firm's current standard for that engagement type, which reflects current standards and current wording, then add what is specific to this client. What the guardrails check, and why fees stay with a person, is covered in guardrails on proposals and engagement letters; what an audit letter must contain is in audit engagement letter terms.
Acceptance and signing
Where the change comes with a new proposal, for example a new service at a new fee, the client opens the proposal from a link and accepts or declines it. Acceptance is recorded with the client's name and the time. It is not an electronic signature, and it raises the engagement letter for the client to sign. Letters are tracked under CRM & SALES > Engagement Letters / Contracts, and a letter can be recorded as signed on paper where the client prefers.
For electronic signature, staff prepare the letter and add signers, approvers and copied recipients in order, and each signer signs from an e-mailed link without an Achekam account. Signing links last 30 days by default. For a company, the right signatory is someone with authority to bind it, usually a director; if governance has changed, make sure the signer is one of the people now in charge.
Effects on retainers and services
Signing a letter is not only a record. When an engagement letter is signed, Achekam activates a service for each quotation line mapped to one of the firm's services and drafts, but does not issue, the invoice. Recurring lines go on a schedule, and recurring fees from signed contracts appear under Retainers, where staff raise each period as a draft invoice or a partner authorises the daily billing run to issue them. Achekam does not collect those fees by debit order or card.
Two cautions follow. First, no screen yet shows everything a signed contract created, or lets staff retry a step that failed, so open the client after signing and check the services and retainers. Second, when a new letter replaces an old one, check that the old recurring fee is not still running beside the new one; the client should be billed on one set of terms, not two.
A worked example
A close corporation that has used the firm for bookkeeping and annual statements converts to a private company and hires its first employees. The manager prepares a proposal adding payroll, priced by a person, and a new letter drafted from the firm's current company template. The partner reviews both. The new financial director accepts the proposal from the link and e-signs the letter. The manager then checks Retainers, finds the old monthly bookkeeping fee listed alongside the new combined fee, and resolves it with the billing partner before the next billing run, so the client is billed once.
The annual habit
At the start of each financial year, list clients whose letters are older than the firm's policy allows or whose circumstances changed during the year. Replace those letters before the work starts, not when the fee is queried.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
