Applications for mortgages, business loans, leases, grants, health and life insurance coverage, government subsidy programs and even child adoption frequently trigger requests by entities for independent verification of certain critical information by your accountant. To gain some assurances that the information you provide is accurate these lenders, providers, regulators and various other government and non-government agencies often request third-party verification letters from our firm.
These requests might be for letters, memos, emails, verbal confirmation or reports that might ask our firm to verify certain information that you have previously provided or that you are simultaneously providing to the lender or third party. The most commonly requested types of verifications must be signed by us or provided on our letterhead or with our signature before they commit to providing a loan, a government subsidy or health insurance, to name a few examples. These communications might be addressed and delivered to you for use with a third party or they might directly addressed to the third party. All of these are called “attestation services”. These engagements are governed by professional standards determined by the AICPA and State Boards of Accountancy.
Two Types of CPA Attestations: Client Information and Matters Related to Solvency
We typically see two types of third-party requests: those requiring verification of confidential client information and those related to matters of solvency. The first is verification of a factual matter. The second is expression of an opinion. A CPA can do either, but each is subject to a different set of standards. It is important to maintain the distinction between confirming a verifiable fact and expression of a professional opinion. This article covers only verification of factual matters. It does not cover CPA opinions.
Understanding Specific Types of Requests
A lender or entity may request verification of:
• Self-employment status
• Number of employees
• Business ownership
• Business profitability
• Business sustainability
• Real estate purchase impact on business
• Business loan impact
For these kinds of requests, there are usually several ways I can respond.
Written Authorization Required
Of course we cannot provide any confidential client information without your signed, written consent. We handle that through an emailed engagement agreement where we ask for your affirmative confirmation.
Verification of Tax Matters
A request to share tax return information may be complicated by Internal Revenue Code Section 7216 that dictates that CPAs obtain specific consent to disclose client tax return information to a third party. Please be aware that I follow that Code when asked to provide copies of tax information, tax returns or other information used in the preparation of a client’s tax return. Additional information about verification of tax information is available from the AICPA.
CPAs are precluded from providing any assurance on matters relating to solvency or the ability for an individual or business to service its debt and meet its other long-term obligations. Matters relating to solvency are subject to legal interpretation under the Federal Bankruptcy Code and various state fraudulent conveyance and transfer statutes. Because these matters are not clearly defined in an accounting sense and are subject to varying interpretations, CPAs don’t have suitable criteria to evaluate a subject matter or make an assertion. However, I can provide a number of other types of responses or activities that address the concerns in a request.
Determining the Proper Response
It makes sense to clarify and confirm the specific verification request. We can provide a response that states factual information, or we might need to provide a more specific type of report, assuming the CPA has performed sufficient procedures and has a basis for the report. I may respond verbally or via email, form letter or other written channels.
Types of responses I can provide
Depending on the request, we may need to provide additional services, such as performing:
• An audit, review or compilation of financial statements;
• An examination, review or compilation of pro forma financial information;
• An examination or compilation of prospective financial information; or
• Agreed-upon procedures and reporting, as long as the agreed-upon procedures do not provide any assurance on matters related to solvency.
For example, if a loan you’re seeking is contingent on a request for self-employment verification, I may respond by performing an engagement to gather and provide the requested factual information for you or, if more assurance is needed, an examination or review engagement.
The cost of these verifications through CPA attestation is substantial. The cost is further increased by a requirement to have these engagements subject to a process called peer review. The cost is primarily determined by the level of assurance required by the requester.
If your lender or other third-party requester makes an inquiry and/or you’re not clear on the type of information they are requesting, please contact me at to help you determine the best response or course of action to take.