Fractional CFO engagement letter: a monthly scope that leaves decisions with the owner

A proposal sells the work. The engagement letter is what the client signs once it says yes. Some firms call it a services agreement, which is fine, as long as it holds the scope, the duties and the limits in one place.

If you are a CPA, the advice part of the role falls under the AICPA consulting standard. Within it, an advisory service is work where the practitioner develops findings, conclusions and recommendations for the client to weigh and act on (AICPA Statement on Standards for Consulting Services No. 1 (CS section 100)). It asks you to agree with the client, in writing or orally, on the responsibilities of each party and the nature, scope and limits of the work (AICPA Statement on Standards for Consulting Services No. 1 (CS section 100)). A signed letter is the clean way to show that.

Monthly reports raise a second question. The AICPA clarified, in SSARS No. 27, that its preparation standard does not cover financial statements prepared as part of a consulting engagement performed under that consulting standard (AICPA: SSARS No. 27, clarifying the application of AR-C section 70). Name the engagement as consulting in the letter, then check the rule with your peer reviewer before you rely on it.

“Strategic financial leadership” is not a scope. A client cannot check it, and you cannot bill against it. Write each deliverable with a cadence and a day of the month, then price anything outside the table as a project.

This clause protects both sides. A part-time CFO who authorizes payments, signs checks or hires staff is acting as management. That changes what you are liable for when something goes wrong.

Payroll taxes show the risk. The IRS can assess the trust fund recovery penalty against any person with authority and control over funds to direct their payment, such as an officer, an employee or a director (IRS: Employment taxes and the trust fund recovery penalty). Willfulness needs no bad motive, only awareness of the unpaid tax and indifference to it (IRS: Employment taxes and the trust fund recovery penalty). So keep signing authority out of the letter unless a separate, written grant says otherwise.

CPA firms that also audit or review the company face a stricter rule. Management responsibilities are the acts of leading and directing an entity, such as authorizing transactions, holding its assets or choosing which recommendations to put in place (AICPA Code of Professional Conduct, ET 1.295.030 and 1.295.040). Taking one on for an attest client impairs independence, and no safeguard cures it (AICPA Code of Professional Conduct, ET 1.295.030 and 1.295.040). The client must also name a person with suitable skill, knowledge or experience to oversee your work (AICPA Code of Professional Conduct, ET 1.295.030 and 1.295.040).

• The owner agrees to budgets, hires, pricing, financing and every payment.
• The CFO prepares the analysis and a written recommendation for each.
• The CFO does not release payments or hold the company’s cash or credentials.
• The owner signs lender certificates and tax filings, after reviewing the CFO’s work.

An access schedule is a list of each system, the role you get in it, and who grants and removes it. Give the role you need, not more. For example, view-only access to the bank and payroll systems, and an accountant role in the ledger. Removing access on the last day should be a named step.

The client side is a monthly list. Bank and card statements, the receivables and payables agings, the payroll register and any new contract or lease should arrive by a fixed day. Say that a late input moves the matching deliverable by the same number of days. That one sentence heads off a common scope argument.

Say also that you rely on what the client gives you and do not audit it. A fractional CFO who finds a problem reports it. Fixing the books is a separate scope, priced as a project.

Fractional work is usually a monthly retainer billed in advance, with a set number of hours. Add an overflow rule: you warn the client when they reach a share of the hours that the letter names, and bill extra hours at a stated rate only after they agree.

Projects sit outside the retainer: a budget build, a fundraising model, a system migration or support during due diligence. Price each one in a short written addendum that refers back to the letter.

For the term, a short first period followed by month to month works well. Write the notice period, what you hand over at the end (models, files and logins) and the date access is removed.

• AICPA Statement on Standards for Consulting Services No. 1 (CS section 100): A practitioner establishes with the client a written or oral understanding about the parties’ responsibilities and the nature, scope and limits of the services.
• AICPA: SSARS No. 27, clarifying the application of AR-C section 70: The preparation standard excludes financial statements prepared as part of a consulting services engagement performed under CS section 100.
• AICPA Code of Professional Conduct, ET 1.295.030 and 1.295.040: Assuming a management responsibility for an attest client impairs independence; the client must name an individual with suitable skill, knowledge or experience to oversee nonattest services.
• IRS: Employment taxes and the trust fund recovery penalty: A responsible person includes anyone with authority and control over funds to direct their disbursement, and willfulness requires no evil intent.