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 or reports that might ask our firm to verify certain information that you have previously provided or that you are simultaneously providing. These communications might be addressed and delivered to you for use with a third party or they might directly addressed to the third party. These are called “attestation services”.
These verification engagements typically 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 engagements are governed by professional standards determined by the AICPA and State Boards of Accountancy. When these requests to you are made, we encourage that you seek our assistance.
Confidential Information and Matters of Solvency
We typically address two types of third-party requests: those requiring verification of confidential client information and those related to matters of solvency.
If we receive a request from a lender or another third-party seeking verification of your information, you should understand we cannot provide any confidential client information without your signed, written consent. All engagements must follow the quality standards established by the AICPA.
Verification of Tax Matters
Likewise, obtaining our clients’ consent to share tax return information creates an added complication because using a standard client consent form is not sufficient. In fact, it’s a crime. Internal Revenue Code Section 7216 dictates that CPAs use a specific format to obtain consent to disclose client tax return information to a third party. Please be aware that I follow the 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.
Additionally, CPAs are precluded from responding to a requester seeking 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.
Lenders are often concerned with legal issues on matters relating to solvency; however, CPAs are generally unable to evaluate or provide assurance on these matters of legal interpretation. The attestation standards preclude CPA practitioners from giving any form of assurance on matters relating to solvency.
However, I can provide a number of other types of responses or activities that address the concerns outlined in a request.
Understanding Other 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.
Determining the Proper Response
We can provide a response that states factual information or we might need to provide a more formal 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 information for you or, if more assurance is needed, an examination or review engagement.
The amount of assurance required by the requester will dictate the associated compliance costs. As a very general rough industry estimate, these services cost from 1.5% (larger organization compilations) to 4% (smaller organization reviews) of gross annual revenues; however every situation is unique.
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.
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