Third Party Verification Requests The Letter of Comfort What can the CPA provide? Name of presenter...
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Transcript of Third Party Verification Requests The Letter of Comfort What can the CPA provide? Name of presenter...
Third Party Verification RequestsThe Letter of ComfortWhat can the CPA provide?
Name of presenterAudienceDate
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Overview
Common Verification Requests
Responding to Requests• What can the CPA provide?• What can’t the CPA
provide?
Professional Services/ Additional Procedures• Advisory/ consulting
services• Agreed-Upon Procedures• Attest engagements and
Levels of Assurance
FAQs
Summary
Questions?
Today’s Agenda
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Overview
Seeing an Increase in Requests
Not a new issue
For banks• Continued tightening of credit underwriting standards
For individual and businesses • As economy improves more individuals and business owners
are seeking funding
Increase in diversity of:• Purpose• Nature• Scope• Intent
Small business owners are impacted the most
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Common Verification Requests
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Examples of Borrower Information Requested
Confirmation of a client’s self-employment status
Verification of income from self-employment
Verification of a borrower’s business ownership percentage
Profitability or sustainability of a self-employed client’s business
The impact on a self-employed client’s business if money is withdrawn to fund the down payment on a real estate purchase
Validation of certain information presented on a tax return
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CPAs Asked to Validate Information By Providing:
A confirmation letter containing specific language
A verification statement validating certain information presented on the tax return
Certain information on a form
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Responding to Requests
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What Can the CPA Provide?
Factual Information Professional services that comprise additional procedures
What can the CPA provide?
Factual information the CPA has obtained (with signed written client consent).
Additional procedures performed ranging from:• rigorous examinations that result in
reports about whether the CPA believes the information to be free of material misstatement,
• to those less rigorous procedures, resulting in lower levels of assurance.
Examples • Copy of income tax return • CPAs written acknowledgment
of tax return preparationo No assurance to the validity
of the information provided by the client
• Copy of articles of incorporation • Copy of articles of organization
• Financial projectionso No assurance to sustainability
• Compilation, Review or Audit of personal financial statements
• Examination, or a Compilation of prospective personal financial statements
• An agreed upon procedures reporto No assurance on matters related to
solvency
Time/Cost Lowest amount of work – generally quick turnaround; Low cost
Involves more work/time; more costly
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What Can’t the CPA Provide?
CPAs Cannot Provide
Assurance on matters relating to SOLVENCY
Confidential client information without client approval
Client tax information without signed, written consent in IRS-specified format
Certification or validation to a third party about information reported on a tax return without performing additional procedures.
ALERT:
For a CPA to validate information reported on a tax return without performing additional procedures would constitute a
violation of professional standards, resulting in licensure implications for the CPA
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Professional Services/ Additional Procedures
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Understanding Lender Needs
What level of assurance is really needed:• Factual information –OR–• CPA validation or certification of information (often requiring
additional procedures performed by the CPA)
If additional procedures are necessary, take into consideration:• The associated time and • Additional costs to the borrower
Professional services that comprise additional procedures include:• Advisory/consulting services• Agreed-Upon Procedures• Attest engagements
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Advisory/ Consulting Services
CPAs can provide factual information (with client consent) • CPAs use professional judgment to obtain the necessary factual
information as long as they aren’t verifying or validating information without performing necessary additional procedures
CPAs can prepare financial projections• For requests asking pending loan’s impact on borrowers self-
employed business • CPAs cannot provide assurance to a client’s ability to repay the
loan
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Agreed-Upon Procedures Engagement
CPAs can prepare a report of findings based on specific procedures performed on specified subject matter• This subject matter and related procedures must be clearly
defined and relatively limited in scope• Subject matter may take many different forms and may be as of
a specified date or over a specified period• CPA does not provide an opinion or negative assurance
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Attest Engagements: The Compilation
Most basic level of service
CPA assists management in presenting financial information
Does not contemplate performing inquiry, analytical procedures, or other procedures
No assurance that there are no material modifications that should be made to the financial statements
The report states that no assurance is provided
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Attest Engagements: The Review
Involves primarily analytical procedures and inquiries that will provide a reasonable basis for obtaining limited assurance
A review does not assess internal control, fraud risk
A review does not test accounting records or other procedures
The report provides a statement that the accountant is not aware of any material modifications that should be made to the financial statements
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Attest Engagements: The Audit
Auditor is required to obtain an understanding of the entity’s internal control and assess fraud risk
Obtain audit evidence • Inquiry, physical inspection, observation, third party
confirmations, examination, analytical and other procedures
The auditor’s report provides an opinion as to whether the financial statements present fairly, in all material respects, the Company’s financial position, results of operations and cash flows
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FAQs
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Self-Employment
Question:• Can the CPA confirm a borrower’s income from self-employment
or self-employment status?
Response: • The CPA can only provide factual information, such as copies of
tax returns (with signed written consents from the client)• The CPA can provide a letter verifying they prepared the tax
return based on information the client provided- This letter can be provided along with tax return copies
• The CPA cannot verify or validate the information reported on a tax return without performing additional procedures
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Financial Projection of Business Income
Question:• Can a CPA provide a requestor with a financial projection of
business income over a specified period?
Response: • A CPA can perform a financial forecast for a client and report
their findings (with client consent).• A CPA cannot attest to the sustainability of the client’s business
as a result of that forecasted projection (that would be expressing an opinion on a client’s solvency).
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Knowledge of Information Requested
Question:• Can a CPA just respond to a request if he has knowledge of the
information requested?
Response: Yes• A CPA can respond to a form letter or email provided that the
information is:- Factual information- Not expressing an opinion unless attestation performed- Not providing an attestation on solvency
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Summary
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In Conclusion…
Credit decisions are based on a lender’s exercise of due diligence • This includes considering multiple factors and information• The burden of determining the impact on the ability of the
business to continue operating as a result of the withdrawal is solely on the lender or broker
• A CPA cannot provide assurance on any matter related to a client’s ability to repay the loan
Options are available to meet lender/borrower’s needs
Working as a team, the lender, the CPA and the borrower can determine how to best meet everyone’s needs
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Questions?