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Separate engagements provide complete clarity over what services are to be provided to what entity.

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Preparing and sending engagements to clients has for some time been a grudge activity that accountants know they need to undertake. Still because it is a time-consuming process, they often don't do it or take shortcuts in producing them. One of the shortcuts that are taken to ease the administrative burden of engagements (and subsequent invoicing & debt collection) is using a “grouped” approach.

Grouping for engagement and invoicing purposes generally sees clients that are related to each other be bundled together to receive only one engagement for the whole group, and often only one invoice. A client group will usually consist of entities and individuals that are somehow “related” to each other and could look something like:

Client group:

  • Trading company

  • Investment Trust

  • Three Individual tax returns

  • Property partnership, and

  • A Self Managed Superannuation Fund

These entities might all be grouped because the individuals are directors, shareholders, members or beneficiaries. Then during the year, as work is done for any of the entities, all of the invoices only go to one entity, with superannuation funds usually being the only exception, and a “standalone” member of the group that gets its own invoices.

This practice is so common that clients themselves have come to expect this approach from their accountants. However, this approach is not only bad for the accountant but for the client too.

What is the guidance on grouped engagements?

It may surprise you to know that the Australian Tax Practitioners Board (TPB) prefers that all clients are engaged separately. In fact, the TPB are so specific in their standpoint on this matter that in their practice note TPB(PN) 3/2019 Terms of Engagement (https://www.tpb.gov.au/tpb-practice-note-tpbpn-32019-letters-engagement) they went to the specifics of noting that:

“separate letters should be issued if you provide tax services to both:

  • a husband and wife

  • a partnership and the individual partners

  • a company and its shareholders

  • a company and its directors (if providing services to the directors separately from the company)

  • the trustees of a trust and its beneficiaries".

Why should accountants engage separately?

This is not just a compliance issue; there are practical business reasons to engage each entity individually. When you work on an engagement— fundamentally a contract—you need to ensure the correct people sign off the document. There are several circumstances where the “head of the group” may not actually be the designated person to sign off on an engagement, and are also unlikely to be able to enter into contracts on behalf of other individuals.

For this reason, it is crucial to ensure that the party you are contracting with has the authority to enter into the contract and has the authority to give instructions for work to be undertaken. Group engagements also make it very difficult to clearly identify in what capacity a person is entering the contract into - is it as director/partner/trustee/executor, and for what entity are they operating in this capacity?

Consider the unfortunate situation of a marriage or partnership breakdown where one person has entered into contracts on behalf of another. This can cause a whole range of issues for work already performed as well as ongoing services. This is especially concerning if you continued to provide services before knowing about the separation and preparing a new engagement - were you even authorised to do this work, and what fallout can be expected?

Separate engagements also provide complete clarity over what services are to be provided to what entity. There is no chance for ambiguity or misunderstanding around service offerings, especially when you consider that it is highly unlikely every entity in the group will be in receipt of the exact same services. An unclear or poorly worded group engagement may see an accountant unable to invoice for services if the client misunderstood what entity was receiving which services, causing a potential dispute.

Providing each entity its own engagement makes the service offering clear, along with the ability to enforce the engagement terms to recover payments.

Why should your clients receive separate engagements and invoices?

If you have been engaging and invoicing your clients to date on a group basis, they may resist the change. However, there are some great business benefits for them in having separate engagements and invoices, including:

  • Clarity around expenses: accounting fees are a business expense that contributes to its overall profit (or loss) position. As with any expense, it is important for a business to be able to assign actual costs to individual entities to determine the true profitability of each organisation.

  • Clarity regarding services: this is the best way for the members of a client group to clearly understand exactly what services you are providing them and for what entity. Especially if you charge differently for the same services provided to different entities due to complexity, quantity of transactions, etc. This allows you to display and explain this to them clearly.

Removing any confusion regarding services and pricing makes it easier for clients to understand changes in pricing and services as their businesses change or the group’s structure evolves over time.

How to inform your clients

If you decide that separate engagements are the way to go, and need to explain this change to your client, the best way is to communicate early and honestly. Let them know that due to updated guidance from the TPB, you have to change the nature of your engagements, and to help you out, here is an example email you can use:

Example client communication

Dear <client>,

Over the years that we have worked together we have always issued you one engagement letter for your whole group and sent all of your invoices to <billing client>. This has been done to help ease your administrative burden and ours.

However this is something that will need to change moving forward. In July 2019 the tax practitioners board issued guidance advising tax agents that we should be engaging each entity and individual we provide services to separately and we have decided now is the time to adopt this guidance at <firm name>.

This means that you will receive an engagement for each entity in your group and these will all receive separate invoices.

To ease the transition we have implemented a new engagement tool that will allow you to swiftly review and electronically sign all of your engagements. This tool will also allow you to enter your payment details into its secure payment gateway. This will mean that you don't need to worry about manually paying us multiple times, we will take payment for services when completed in line with our current payment terms, greatly reducing your administration time.

We understand that this is a change to how we have worked with you previously, we do believe it is a change for the better. If you do have any questions, as always please feel free to contact us.

How Ignition makes it easy to engage the right person for the right services

By leveraging the power of technology and Ignition’s exclusive templates, you can send at least five separate engagements in less than the time it would take to create one group engagement using traditional manual processes.

To further streamline your processes, with Ignition, you can also collect payment details at the time of the engagement’s approval and then automate the issuing invoices and taking payments. This end-to-end automation, means regardless of how many entities you invoice, it wont take any additional time, and there will be no time wasted chasing debtors as your payments will be completely managed.

To get started with a free 14-day trial with no credit card required, sign up today.

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Meet the author

Rebecca Mihalic

Head of Accounting (APAC) at Ignition and Director  businessDEPOT

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Published 26 Oct 2021 Last updated 19 Mar 2024