CPA Letter

[Vityaba]

A client applies for a mortgage but because he is using his S-corp business account for personal expenses, including earnest money deposit, the lender requires a CPA letter that states that the borrower has full access to business account funds and will not negatively impact business. Obviously I cannot make that kind of statement if all I did was tax return preparations. Any advise what should be performed to make requested statement? I personally do not see anything and think that I should refuse such request

Thank you for your thoughts

[BulldogTom]

You are correct. You should not be making statements regarding the viability of the corporation unless you are specifically hired to do so. It sounds like your engagement was limited to the preparation of the tax return, and if you have an engagement letter, it should say something like you did not audit the records and relied on the information provided by the client.

You cannot attest to what you do not know.

I would politely decline.

Tom

Hollister, CA

[rfassett]

There are all sorts of posts about these things and the AICPA has issued some sample letters as have some of the malpractice insurance companies. You should contact your insurer for guidance if you have not. My letter simply states that I have prepared the tax returns for xx number of years for the client and I will be happy to supply the client with another copy to give to them. I get all kinds of flac from the banks about this but tell them that is all I can do and they need to do their own diligence. The most funny one I have had is a bank called me to ask if one of our mutual clients was still in business. I said, "do you have gas in your car". The response was "yes, why?" I said, "then get off your rear-end and get in your car and drive the five miles to his place of business and see if he is open." She (the banker) doesn't call me anymore.

[JMovichEA]

I had similar request yesterday from a mortgage lender. I flatly refused.

These links may provide some useful information on this:

http://www.aicpa.org/InterestAreas/FRC/Pages/ConcernsRegardingComfortLetters.aspx

http://www.journalofaccountancy.com/Web/20091528.htm

http://www.cpai.com/show-article?id=141#.UYQg8Erm9Ep

[Lee B]

I have actually written 3 or 4 of these letters over the years, but only when I was doing writeup, payroll and tax prep for the client

for more then 10 years in a stable situation, where there was no questions. In your situation, I would not write the letter.

[Vityaba]

Thank you all for the input. The links were very helpful!

[Catherine]

Thank you all for the input. The links were very helpful!

The crucial piece to keep in mind with these requests is that the bank is looking for someone ELSE (=you) to blame (=sue) if your tax client defaults on his mortgage.

Any letter you do write (and some of the samples are excellent) really needs to include the lines about "do your own due diligence; I am NOT responsible for the consequences of your decision" to protect yourself.

[Guest Taxed]

In March one of my clients who owns 50% of a LLC applied for refinancing. Got a standard letter from Well Fargo requesting certain documentation (Form 1065 and K1 and Form 1040). Called my client he gave me written authorization to release that information. Then I got a call from the mortgage officer wanting to discuss how the return was prepared the source documents etc. Got my client on a conference call and answered the questions.

I did e-mail the bank that my engagement is limited to preparation of the tax returns. I do NOT audit the books of the business. I rely on the quick books report they provide as to the authencity and accuracy of the various income and expense items.

One question the bank officer always ask is if I am a CPA!

[joanmcq]

I just did a refi, and when talking with the loan officer about open items, she said, "oh, we'll since you ARE a CPA, I guess you do your own tax return" and I guess checked off the CPA letter on her list. Of course, I'm the only one for whom I would write a CPA letter. :)

[Guest Taxed]

You do get the banker's respect if you are a CPA!