What Is an Accounting Agreement?

First and foremost, we need to define what is accounting all about. Well, in its most basic definition, refers to the process of collecting and summarizing business and financial activities, as well as evaluating, validating, and reporting the resulting data to oversight authorities, regulators, and tax collection bodies. What happens to these results, you may ask? Well, the data that is gathered from these reports are then used to make judgments about how to run the company, invest in it, or lend money to it. Accounting is a critical role in making decisions, cost planning, and assessment of economic performance measurement in all businesses, which is why they need this function, no matter how big or little they are.

In the case of various companies that specialize in accounting (known as accounting firms), they need to deal with their respective clients properly and protect their interests while engaging in business with them. A legal document known as an accounting agreement will make this possible. Businesses that want specific portions of their money handled and people with particular accounting requirements both require an accounting agreement. When a company wants to create a professional connection between a client and an independent accountant, they utilize this agreement. Furthermore, when it comes to financial adherence and guidance, this document protects both clients and accountants, which is why it is required anytime a client agrees to conduct business with the accounting company. In other words, this document aids in the setting of expectations and the reduction of the risk of conflict between the parties concerned.

What’s Inside an Accounting Agreement?

In order to be effective in serving its purpose, an accounting agreement needs to have the following key components in place:

Title. This is usually the first important bit that the reader sees whenever this document is handed to them. This component solely consists of the title of the agreement, which serves to determine its entire purpose. In this case, it’s titled an accounting agreement.The Parties Involved. This is the next key component that should be present when creating this document. It should identify who are the parties that are going to be involved in this agreement. In the case of an accounting agreement, the parties are identified as the client and the provider (the accounting firm). In creating this part of the document, the main thing that needs to be done is to list out their names, addresses, and their key contact details (email addresses and/or phone numbers). Right after this entire block of identifications, a short recital clause may follow which will state in wording that the parties involved will agree to the terms of the accounting agreement.Engagement. This key element of the accounting agreement should come next after the section identifying the parties involved. This part states in wording that the client will engage the provider and the provider will agree to render their services to the client throughout the agreement. This part also states that the services that are to be provided to the client need to be properly requested and communicated by the client and/or their authorized representatives, and the said services will have to be rendered in a professional manner and within the best interest of the client.Term. After the engagement clause of the accounting agreement would be the term. Simply put, this key component of the accounting agreement generally dictates that the agreement will start and end on the dates that have been agreed upon by the parties involved.Compensation. This clause of the agreement generally comes after the start and end dates of the agreement. This states in writing that the parties involved agree that the accountant shall invoice the client on a predetermined basis (daily, weekly, or monthly) for the services that are being rendered. Additionally, the services rendered by the provider will be performed at a predetermined hourly rate. It also states in writing that the invoices will automatically be due upon receipt by the client, and the accounting firm is entitled to an additional increase in payment which serves as a late charge fee whenever the due invoices have not been paid in a given period of time.Relationship of the Parties. This key component comes next after the compensation/payment clause. The parties agree that the accountant is delivering the services under this agreement as an independent contractor rather than an employee under this section of the accountant agreement. This section further indicates that the agreement does not establish a partnership, joint venture, or other contractual relationship between the client and the accountant. It further indicates that the service provider has no jurisdiction to engage in agreements on behalf of the customer and that the client is not liable for withholding taxes from invoices sent to the provider.Confidentiality Clause. This is another key component of the accounting agreement and usually comes after the independent contractor clause. A confidentiality clause is important because it may be necessary for the client to share proprietary information with the provider during the course of the agreement, such as financial information, trade secrets, industry knowledge, and other private information, in order for the latter to complete the services. This paragraph should essentially declare that the accountant will not discuss any of the confidential information with anybody and will not use any of the confidential information for personal gain at any time. Furthermore, even after the agreement is terminated, the confidentiality clause stays in full force and effect.Audit. After the confidentiality clause, the audit clause comes next in the accounting agreement. The accountant agreement’s audit clause simply specifies that the accountant must keep comprehensive records of all business undertaken in connection with the provided services and the entire agreement. This provision further stipulates that the accountant’s records will be open to full scrutiny and audit by the customer and any government authorities for the time period needed by law.IP Rights. This clause of the accountant agreement comes after the audit section. With IP standing for intellectual property, this clause of the agreement shall state that any creations that are born from the accounting services being provided within the predetermined scope of the agreement should always be the sole intellectual property of the client without any exception. This component of the agreement also states that the service provider must assist the client in protecting the said intellectual property rights.Termination Clause. This is considered to be the last of the main clauses of the agreement. The accountant agreement’s termination clause indicates that either party may cancel the agreement at any time by giving the other party prior written notice. It further specifies that the client is liable for paying for all services rendered by the provider up until the date of termination, save in the case of the accountant’s breach of the agreement, in which case the accountant fails to repair the breach after receiving fair notice. It also states that upon the termination of the agreement, the service provider shall return any property and work products to the client at the earliest possible opportunity.Representations and Warranties. After the main clauses of the agreement, we now come to what is known as the boilerplate clauses, and this is one of them. The accountant agreement’s representations and warranties provision specifies that all parties concerned represent that they are properly authorized to engage in the agreement. The accountant also promises to execute accounting services in line with predefined ethical standards. This section further specifies that all analyses, records, reports, and filings shall be done in accordance with local, state, and federal laws.Severability Clause. Another boilerplate clause in this agreement would be the severability clause. The accountant agreement’s severability clause basically states that if any provision of the agreement is found to be invalid or unenforceable, in whole or in part, that provision will be severed from the rest of the agreement, while all other provisions will remain in full force and effect as valid and enforceable.Signature Block. This boilerplate serves as the last important clause of the entire accountant agreement and basically demonstrates that the parties involved in the agreement agree to the terms and conditions of the entire document by affixing their signatures along with their names, the date on which the signatures were affixed, and any other key details. Whenever the signatures are affixed to this agreement, the terms and conditions set are then put into action and will already be effective at the predetermined date set by the parties involved.

How to Create an Accounting Agreement

Here are the steps that should be followed when creating an accountant agreement in order for it to be effective:

1. Identifying the Parties Involved

In creating an accounting agreement, or any type of agreement, the first thing that should be done is to identify the parties involved and who’s who throughout the entire time that the agreement is in effect. In the case of an accounting agreement, the parties involved are the accountant and the client. The role of the accountant in this agreement is to provide the services to the client as needed in a professional manner and within the client’s best interest. The role of the client in this agreement is to communicate everything that they need to the accountant so that it may be addressed properly and without any problems.

2. Drafting the Main Clauses

When the parties involved in the accounting agreement have already been identified along with their roles, the next thing that needs to be done is to draft the main clauses of the agreement. What are considered to be the main clauses of the agreement? Some of the main clauses of the agreement include the engagement, the term, the compensation, the relationship, and the confidentiality clause. The engagement clause dictates in writing the main responsibilities of the client and the accountant. The term basically determines the start and end dates of the agreement. The compensation clause determines the amount to be paid by the client to the provider, when and how it is going to be provided, and if there are any additional expenses that should be included. The relationship clause basically states that the accountant acts as an independent contractor of the client and not as a full-time employee, and the confidentiality clause serves to protect any trade secrets or confidential information that may be shared throughout the course of the agreement.

3. Drafting the Boilerplate Clauses

When the main clauses of the accounting have already been drafted, the boilerplate clauses will then come next. Boilerplate clauses are also known as standard or general clauses that are present at the end of most legal documents such as this agreement. Some of the boilerplate clauses in this agreement include the representations and warranties clause and the severability clause. The representations and warranties clause states that all parties concerned in this agreement represent that they are properly authorized to engage in the agreement. The severability clause of the agreement states that an ineffective provision of the agreement shall be considered null and void and shall be removed from the document while those that are effective will continue to do so.

4. Verifying the Document

Once the main and boilerplate clauses have already been drafted, it’s time to verify the entire document, which also serves as the last step. In this step of creating the agreement, verify if there are any clauses that have missing or inconsistent wording that may cause it to be ineffective. Additionally, check if everything that needs to be included is present in this document. A good tip here would be to seek legal help in verifying this document. Once everything has been verified and the document is deemed to be complete, the parties involved can then proceed to pen their signatures to put this agreement into action.


How different is accounting from bookkeeping?

Although accounting and bookkeeping are both components of the same process, which is to keep your financial records in check, they serve different objectives. On the one side, bookkeeping focuses on documenting daily financial transactions and activities, whereas accounting analyzes, strategizes, and plans taxes using that financial data.

Why is this document important?

An accounting agreement is important since unmanaged or erroneous accounting services may cost clients thousands, if not hundreds of thousands of dollars to rectify. Furthermore, because accountants are viewed as trustworthy advisers with access to sensitive financial information, they may violate corporate ethics and privacy, which might be disastrous for all parties involved. This document, when effectively written, will prevent such scenarios from happening.

How is accounting information often used by business owners?

Accounting information is constantly used by business owners to build budgets for their firms. Company owners may use historical financial accounting data to get a thorough look at how their organizations have spent money on various business tasks. They may also use this accounting data to create future budgets, ensuring that their firms are on the right track financially.

As stated earlier, an accounting agreement protects the interests of the parties involved (the client and the accountant) whenever they do business with each other by holding them accountable when providing financial records in order to make sure that they are accurate and up to date. This document also helps all parties involved establish a professional relationship through the course of the agreement. If you find yourself in difficulty when creating this document, this article contains sample templates that should serve as a solid foundation/reference when you need to make one.