APES 305: What It Requires of Your Engagement Letter

APES 305 requires members in public practice to document and communicate their agreed engagement terms. An engagement letter usually does this. Send it before work starts, while distinguishing that recommended timing from the standard’s mandatory duties.

What APES 305 Requires, in Short

APES 305 Terms of Engagement requires written terms and communication with the client under paragraphs 3.1 and 3.8. Paragraph 3.3 recommends doing this before the engagement begins. Paragraph 4.10 recommends written client acceptance.

The Accounting Professional & Ethical Standards Board (APESB) issues the standard. It binds covered members of CPA Australia, Chartered Accountants Australia and New Zealand (CA ANZ) and the Institute of Public Accountants (IPA).

Terms of engagement are the conditions the client and member agree for the work. The engagement letter records them. Under paragraph 3.9, another suitable written format, including electronic communication, is acceptable. A verbal agreement alone does not meet the written-document duty.

Use the APESB standard to separate mandatory paragraphs in bold from explanatory guidance in normal type.

Members and Engagements the Standard Covers

APES 305 covers members in public practice providing professional services, including tax, accounting and advisory work. Paragraph 1.4 requires Australian members to follow its mandatory requirements. Paragraph 1.5 covers members practising overseas, subject to local law.

Non-member staff do not become professional body members by working in your practice. Your practice’s engagement procedures can require them to use the same approved letters and recordkeeping steps. The member remains responsible for the applicable professional obligations.

Audit terms also have specific standards, including ASA 210, as paragraph 1.3 explains. This article covers non-assurance engagement letters. It does not supply audit or assurance terms.

The current APESB listing identifies the 2024 edition, effective for engagements commencing from the start of 2025. It supersedes the 2020 edition.

Technical Update 2024/3 explains the changes. They add a definition of confidential information and update related confidentiality and cloud-computing wording. The changes follow the technology revisions to APES 110.

The Terms APES 305 Says to Document

APES 305 makes documenting and communicating terms mandatory, while section 4 guides the contents to suit the engagement. Do not treat every suggested clause as a separate bold-type requirement.

The operative mandatory duties relevant to the letter are these:

Paragraph	Mandatory duty
3.1	Document the agreed terms and communicate them to the client.
3.4	Follow APES 110 subsection 114 when handling confidential information.
3.6	Document and communicate the required outsourced-service details when outsourcing applies.
3.8	Put the terms in a written engagement document.
6.1	Follow applicable scheme legislation and professional body rules if participating in a professional standards scheme.
6.2	Give the client the required disclosure of scheme-based liability limitation.

Paragraph 1.6 also requires compliance with other applicable professional standards. A letter cannot remove duties imposed by law.

Section 4 gives the following clause-by-clause guide. The entity entry is a practical application of identifying the client and defining scope, not a separately numbered section 4 requirement.

Matter	Reference	What your letter needs to explain
Purpose	4.2	Confirm the agreed terms and the understanding they record.
Objectives and limitations	4.3	State the work’s objectives and applicable limits, including whether any assurance is provided.
Client entity and scope	Definitions and 4.4	Identify the client, covered periods, included work, exclusions, timing and information required.
Outputs	4.5	Identify reports or other deliverables, their timing, intended use and distribution.
Responsibilities	4.6	Separate the practice’s duties from the client’s duties and those of third parties.
Confidentiality	3.4 and 4.6(a)	Explain confidentiality duties, relevant professional body quality reviews and obligations concerning non-compliance with laws.
Other practitioners	4.7	Explain any work another member in public practice will perform.
Fees and billing	4.8	State the fee calculation basis and agreed billing schedule.
Documents and data	4.9	Explain ownership and any lien policy, including the process for disputes about the lien.
Client confirmation	4.10	Ask the client to confirm their understanding and acceptance, preferably in writing.
Outsourced services	3.6	Identify the provider, service location and work outsourced.
Cloud computing	3.7	Describe the provider, location and confidential-information storage where cloud use is not an outsourced service.
Liability scheme	4.5(c), 6.1 and 6.2	Include applicable scheme disclosure and meet the scheme’s legal conditions.

Two Illustrative Clause Checks

These invented examples show specificity for two matters. They do not establish that an entire letter complies with every applicable obligation.

For scope, use this illustrative clause. “We will prepare the company’s annual income tax return from the records you provide. Payroll and tax advice for shareholders are excluded.”

This clause falls short. “We will look after your tax.” It leaves the entity, work and exclusions unclear.

For fees, use this illustrative clause. “We will charge for hours worked at the hourly rates in the attached fee schedule, which forms part of this letter. We will invoice monthly.”

This clause falls short. “Our usual fees apply.” It does not identify the fee calculation basis or billing schedule.

For a fuller document, use the accountant engagement letter guide and tailor its clauses to the actual engagement.

Outsourced and Offshore Work in Your Terms

Paragraph 3.6 requires disclosure of the outsourced provider’s details, geographic service location and the nature and extent of the outsourced work. This applies to covered outsourcing within Australia as well as overseas.

Put that disclosure beside the responsibilities and confidentiality clauses. Identify which tasks the provider performs and what client information it receives. Avoid a generic permission to send information to any unidentified third party.

Confidentiality also applies under paragraph 3.4. For registered tax agents, Code item 6 generally requires client permission before disclosing client affairs to a third party, unless a legal duty applies. Record the permission for the actual proposed sharing.

If you introduce an offshore provider partway through an engagement, update and communicate the changed terms before sending information. Obtain the necessary permission first. Treat this as your implementation of the disclosure and confidentiality duties, not a separate statutory renewal deadline in APES 305.

Cloud computing has separate guidance in paragraph 3.7 when it is not an outsourced service. Explain the cloud provider and geographic location, together with how confidential information is stored. Calling storage “in the cloud” leaves those details unanswered.

Recurring Engagements and Reissuing Terms

APES 305 allows recurring engagements and does not require a fresh signed letter every year for every client. Paragraph 5.1 describes periodic work under unchanged terms, such as annual return preparation.

Under paragraph 5.2, consider amending or reissuing terms when any of these situations arise:

• The client misunderstands the scope or objectives.
• The work changes, including a new entity or an additional service.
• The agreed terms change, including the fee basis.
• The client’s management or ownership changes.
• The business changes in nature or size.
• Professional standards or applicable law change.

For unchanged work, a reminder can identify the existing letter and confirm that it still covers the engagement. A reminder cannot extend an old company-only letter to a newly added trust without defining that additional work.

Keep the exact version sent, the recipient and sending record. Save the client’s acceptance and the signatory’s authority, plus any agreed amendments. Engagement letter software can help you issue letters and retain their signing records.

An annual practice review is a useful way to identify changes. Its frequency is your procedure, not a fixed renewal period set by APES 305.

APES 305 Beside the TPB Code and APES 320

APES 305 governs covered professional body members, while the Tax Practitioners Board (TPB) Code governs registered tax practitioners. A registered tax agent outside those professional bodies still has TPB duties.

Both frameworks address confidentiality and professional service responsibilities. Under the TPB Code, competence and reasonable care remain the practitioner’s duties. Writing that the client is responsible for accurate information does not transfer those duties to the client.

The TPB’s engagement letter guidance encourages letters. It distinguishes that recommendation from a specific requirement to use a letter under the TASA Code.

Section 45 of the Code Determination adds client information beyond APES 305. Give written, prominent and clear information about access to the TPB register, the complaints process and general rights and responsibilities. Disclose relevant prescribed events and registration conditions that limit the services you can provide.

The TPB disclosure guidance explains the event categories and timing. An engagement or re-engagement letter can carry the information. A compliant written combination of other documents is also possible. The duties apply regardless of professional body membership.

APES 320 Quality Management for Firms that provide Non-Assurance Services governs the practice’s procedures. Paragraphs 4.10 and 4.14 cover acceptance, continuance and handling identified issues. Consistent letters help record the scope the practice accepted and the responsibilities assigned for that work.

Keep the letter with the acceptance decision and relevant supporting records. The APES 320 guide covers the wider procedures. The TPB Code guide covers the registered tax practitioner duties.

Checking Your Letter Against APES 305 at Onboarding

Check your engagement letter while onboarding the client, before staff begin the first job. A verbal agreement leaves the practice without the written terms APES 305 requires. It also makes disputes over scope or fees harder to resolve.

Run this self-check over the letter and the client record:

• Agreed terms are written and the record shows communication to the client: 3.1 and 3.8.
• The named clients match the people and entities on the onboarding form.
• The letter confirms its purpose and objectives: 4.2 and 4.3.
• Scope identifies covered work, exclusions, periods and information required: 4.4.
• Outputs identify the deliverables and their intended use: 4.5.
• Practice, client and third-party responsibilities are separate: 4.6.
• Confidentiality duties and relevant quality-review access are addressed: 3.4 and 4.6(a).
• Other practitioners’ involvement is described where relevant: 4.7.
• The fee basis and billing schedule are clear: 4.8.
• Document and data ownership, plus any lien policy, are explained: 4.9.
• Client confirmation is requested and retained, preferably in writing: 4.10.
• Applicable outsourcing details are disclosed and necessary information-sharing permission is recorded: 3.6 and confidentiality duties.
• Cloud-provider information is addressed where applicable: 3.7.
• Any liability-scheme participation meets its disclosure and legal requirements: 6.1 and 6.2.
• Recurring terms are reviewed for changes before the next job: 5.2.

For a client group, match each service to its client entity. A director’s personal return and a company’s return are distinct engagements even when one person is your contact. Resolve any mismatch before sending the letter, then save the agreed version with the client’s acceptance.