WHAT YOUR BANK DOESN’T KNOW ABOUT COMFORT LETTERSMany of our clients have approached us with the task of writing “comfort letters” for them. This type of verification is typically requested by lenders and loan brokers, and can include verification of a taxpayer’s self-employed income, profitability of the business, and impact on the business if money is withdrawn to put toward a real estate down payment.
This nature of this letter rides a slippery slope; although we can provide lenders with basic factual information signed by the client, CPA’s are prohibited from providing any sort of assurance on solvency. Our liability insurance may even forbid comfort letters not related to solvency. If a CPA validates information reported on a tax return without performing additional procedures, such as an official audit or review, this would constitute a violation of professional standards, putting his license and his entire practice in jeopardy.
CPA’s prepare tax returns based on information furnished to them by the client. Although an accountant does his due diligence in preparing the return, he is in no way auditing or otherwise verifying that the information is true. Circular 230 states that a CPA “may rely in good faith without verification upon information furnished by the client.” He must make reasonable inquiries, but he is not affirming the accuracy of the numbers provided to him.
If you are a bank requesting CPA comfort letters, you should update your outdated checklist. If you are a client and your bank insists on obtaining one from us, it may be time for you to switch banks.