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January 1, 2011

Dear Client:

This letter is to confirm our understanding of the terms and objectives of our engagement and the nature and limitations of the services we will provide. The services that we will provide are listed on the attached Schedule of Services Provided.

1.         With respect to interim and annual financial statements of XYZ. that are for management’s use only and are not accompanied by a report:

We will compile, from information you provide, the interim financial statements for use by management only. A compilation is limited to presenting in the form of financial statements information that is the representation of management. We will not audit or review the financial statements and, accordingly, will not express an opinion or any other form of assurance on them. The financial statements will not be accompanied by a report.

Based on our discussions with you, these financial statements are for your use only and are not intended for third-party use. Material departures from generally accepted accounting principles (GAAP) or other comprehensive basis of accounting (OCBOA) may exist and the effects of those departures, if any, on the financial statements may not be disclosed. In addition, substantially all disclosures required by GAAP and OCBOA may be omitted. Because of the extent of material departures that may exist in, or required disclosures that may be omitted from, these financial statements, we make no representations regarding the appropriateness of such statements for your intended use or for any other purpose. Moreover, because of the nature of this engagement, we are not responsible for communicating any such departures or omissions to you.

Notwithstanding those limitations, you represent that you have knowledge about the nature of the procedures applied and the basis of accounting and assumptions used in the preparation of the financial statements that allows you to place the financial information contained in the statements in the proper context. Accordingly, you represent and agree that the financial statements are intended solely for your information and use and are not intended to be, and should not be, used by third parties. You also represent and agree that you will not distribute the statements to such third parties.

Furthermore, you represent and agree that the use of the financial statements will be limited to members of management with similar knowledge. You also represent that it is your responsibility to educate other members of management with whom you choose to share the financial statements to enable them to understand the potential limitations of such statements and place the information in its proper context.

2.         With respect to the annual and any interim financial statements of XYZ. intended for third party use:  We will compile these statements from information you provide. We will not audit or review such financial statements. Our report on these financial statements of XYZ. is presently expected to read as follows:

We have compiled the accompanying statement of assets, liabilities, and equity – income tax basis of XYZ Company (an S corporation) as of December 31, 20XX, and the related statements of revenues, expenses, and retained earnings – income tax basis for the year then ended. We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or provide any assurance about whether the financial statements are in accordance with the income tax basis of accounting.

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the income tax basis of accounting and for designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of the financial statements.

Our responsibility is to conduct the compilation in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. The objective of a compilation is to assist management in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements.

Management has elected to omit substantially all of the disclosures ordinarily included in the financial statements prepared on the income tax basis of accounting. If the omitted disclosures were included in the financial statements, they might influence the user's conclusions about the Company's assets, liabilities, equity, revenues, and expenses. Accordingly, the financial statements are not designed for those who are not informed about such matters.

We are not independent with respect to XYZ Company.

Baker & Company, P.C.

Report Date

Interim financial statements may not include the prior year’s information and the report will be changed accordingly.

If, for any reason, we are unable to complete the compilation of your financial statements, we will not issue a report on such statements as a result of this engagement.

Our engagement cannot be relied upon to disclose errors, fraud, or illegal acts that may exist. However, we will inform you of any material errors that come to our attention and any fraud or illegal acts that come to our attention, unless they are clearly inconsequential. In addition, we have no responsibility to identify and communicate significant deficiencies or material weaknesses in your internal control as part of this engagement.

By your signature below, you are confirming to us that unless we are otherwise advised, the travel, entertainment, gifts, and related expenses are supported by the necessary records required under Section 274 of the Internal Revenue Code. Please ask us for advice if you have any questions as to the type of records required.

Our fees for bookkeeping services are charged at an hourly fee of $___, billed to you monthly and payable on receipt. Non-bookkeeping services will be charged at a different rate which you will approve prior to the commencement of any such non-bookkeeping services.

We shall be pleased to discuss this engagement letter with you at any time.

If the foregoing is in accordance with your understanding, please sign the copy of this letter in the space provided and return it to us.

SCHEDULE OF SERVICES PROVIDED