Limiting Liability with Engagement letters, Terms and Conditions Docs and Master Service Agreements

John F. Raspante, CPA, CDFA, MST, McGowan Pro and Michael Colicchia, CPA, ProSmile – August 27, 2026

Engagement letters have been utilized by many CPA firms for decades. Moreover, professional standards require engagement letters in attest engagements. In addition, they are recommended by attorneys and malpractice insurance carriers in all engagements. Albeit engagement letters are not without complications.

Statements on Standards for Accounting and Review Services (SSARS) engagement letters for nonpublic entities, specifically AR-C Section 60 and related sections (AR-C 70, 80, and 90), explicitly require CPAs to obtain a signed written engagement letter for compilation, preparation and review engagements. Financial statement audit standards, such as AU-C Section 210 under American Institute of CPAs’ (AICPA) Generally Accepted Auditing Standards (GAAS), likewise require a written agreement on engagement terms such as the following:

Clients who refuse to sign the letter
Monitoring receipt of the letter
Time and cost consumption
Professional standard mandates
The length of the letter
Language appearing to benefit only the CPA

Terms and Conditions Document

An alternative to alleviating these and other complications is a terms and conditions (T&C) document. The fourth and fifth bullet points below tend to benefit the most from such a document. As professional standards change, such as digital assets, all that’s required is an addition to the current document. The length of the standard engagement is reduced as the terms and conditions (i.e., record retention, use of the internet, payment terms) now reside in the T&C document. It is strongly recommended to have engagement letter caveats that restrict or eliminate clients’ legal rights in the standard letter as opposed to the T&C document. Examples include the following:

Alternative dispute language (arbitration and mediation)
Limitation of liability provisions
Venue/jurisdiction (which states’ laws govern disputes)
Stop work provisions
Detection of fraud

The following clause is highly advisable if a T&C document is used:

The terms and conditions document should be read in conjunction with the firm engagement letter as it’s an integral part of the engagement letter.

MSA Usage

A relatively new document, but growing in use, is the Master Service Agreement (MSA). Unlike an engagement letter, the MSA can cover multiple services in one letter and multiple periods. Bullet points two and three above appear to benefit the MSA as a result of time, cost and monitoring. However, it should be noted that MSAs are not without their own complications.

By definition, an MSA is a core legal contract that sets up the general rules, rights and duties for an ongoing business relationship between two parties. It covers big-picture topics like payment terms, legal liability and secrecy so that people do not have to rewrite these basic rules for every new job.

Since an MSA can cover many or indefinite time periods, they present difficulty in determining the trigger for the statue-of-limitations (SOL). While SOLs vary in each state, laws that clearly define engagement letters with beginning and ending provisions help with claim defense.

MSAs are favored, especially by larger firms, for use with clients where firms provide multiple services. The MSA contains the basic terms of the overall relationship, including the kind of terms that might be found in a T&C addendum to a standard engagement letter. Once the MSA is in place, each time the client wants to have the firm perform a specific service (e.g., an audit, tax prep, consulting), the parties create a statement of work (SOW) incorporating the MSA by reference and adding only the terms specific to the new service. There is no limit to the number of SOWs the parties can create under a single MSA. To address the statute of limitation issue, language can be crafted for the MSA and each SOW expressing the parties’ intent that each SOW is a separate and distinct engagement (which may work).

An MSA is generally recommended for firms that handle multiple types of services for the same clients over several years. However, it is crucial to ensure that the individual engagement letter SOWs remain specific enough to meet professional standards and that the MSA itself is reviewed by legal counsel every one to two years.

It should also be noted that, many times, an MSA is initiated by the client as opposed to the CPA firm.

While terms and conditions and MSAs gain in popularity among CPA firms, carefully crafted engagement letters are still generally the best line of defense in a professional liability lawsuit.