Economic conditions drive surge in demand for accountant’s letters, CPA warns
The rising cost of living and higher interest rates have seen increased requests for accountant’s letters, posing substantial risks for accountants, CPA Australia cautions.
CPA Australia has reminded accountants on the significant risks involved with signing accountant’s letters with CPA members seeing a jump in the number of requests for these documents from clients and lenders in the current environment.
The accounting body said while the actual format of the information requested varies widely, accountants are usually asked to provide or confirm information about a client’s historical, current or future financial affairs.
“Our members are increasingly being asked for accountant’s letters. The COVID-19 pandemic drove a rise in demand for these. The current economic conditions, including rising cost of living and higher interest rates have also seen the demand for accountant’s letters increase,” said CPA Australia head of policy and advocacy, Elinor Kasapidis.
“We are concerned that lenders among others are seeking to outsource some of their risk assessments by asking accountants to sign these letters. Lenders should be tightening their lending requirements and undertaking their own assessments rather than trying to avoid this responsibility.”
Significant risks for accountants
Ms Kasapidis said the practice of asking for accountant’s letters “has been a thorn in the side of the accounting profession for years” and that there are substantial risks for accountants who sign these letters.
“We strongly advise our members against signing accountants letters unless they have a clear understanding of the risks involved, as discussed in our toolkit,” she said.
Chartered Accountants, CPA Australia and the Institute of Public Accountants released a toolkit together in May which assists accountants in how to respond to requests for letters and decide whether they are comfortable to provide them.
“Any accountant who signs these letters is putting themselves in a risky position. If a client defaults on their loan, an accountant who signed a letter may find themselves at risk,” said Ms Kasapidis.
“Lenders may take action against accountants who have provided these letters.”
Providing guarantees about a client’s financial future and cash flow is especially risky given today’s uncertain economic environment, cautioned Ms Kasapidis.
“We urge members not to sign accountant’s letters in most cases,” she said.
“[There are] other ways to support clients, such as by providing factually verifiable information, such as financial statements and balance sheets.”
CPA Australia also reminded accountants to ensure that any service or advice they provide will be covered by their Professional Indemnity Insurance, said CPA Australia.
While most requests for accountant’s letters are typically for SMEs, Ms Kasapidis also reminded accountants that personal lending is a regulated activity that requires licensing under an Australian Credit Licence.
“If an accountant’s letter is signed for personal lending then this could be considered providing credit assistance. An accountant would need to be appropriately licensed,” she said.
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