If you have recently thought of refinancing or applying for a new loan, your bank or finance broker may have advised you that they require an “Accountants Letter” to support your application. At this stage – you are thinking “easy, I will contact my trusted accountants CJMA 😉” and they can organise this for me.
Well, not so fast…….
Lets just go through some points you need to understand about these letters and why they are frowned upon by us and our fellow accountant buddies…….
What is an “Accountants Letter”?
Basically this is a letter signed off by an accountant stating that information we are providing regarding our client to an external party (i.e. bank) is true and correct. Generally it’s confirming your income, expenses, tax liabilities, business performance, etc (you get the drift)…. Now – we have no issue with this if we are confirming factual information – such as historic and present financial information as we can confirm what has happened.
So what is the problem we hear you say???
The problem lies where they (bank/lenders) ask us to predict the future and require reassurance from us as your accountant that you are a good “lend” even though between yourselves and us, they have been provided with all the information we have (financial statements, tax returns, notice of assessments, etc).
On top of this information – they basically want a letter from us “predicting the future”. As much as we would love to be able to do this – we can only provide a forecast based on assumptions but cannot provide certainty! We cannot predict the future and accept the bank’s risk of lending you money. And this is basically what they want from us!
We don’t know for sure if your future trading will be similar to your past trading; we don’t know for sure if your income will be sufficient to pay your future debts – our only verification is what you have told us and the information you have provided us with. And this is exactly what the bank has as well. So they want certainty from us and want us to take the fall for if anything goes wrong…. And as you can appreciate – that is not a fair and acceptable position for us to be put in.
The need for these letters has really vamped up post the royal commission and the pandemic, and we believe this is so liability can be shifted from them as a lender to us as your accountants to save their 🍑😲. So if something happens (and you cannot meet your obligations with them) they have someone else to blame/sue.
Our accounting body CPA (and other accounting bodies such as CAANZ and IPA) have strongly advised accountants NOT to provide these letters.
What can we sign off on?
We are more than happy to sign off on “factual information” – offcourse once we have analyzed your information and have done our investigations. And as you can appreciate this takes time and comes with a cost. We have our own templates and wording which limits the risks to our business.
So as much as we love helping our clients – we need to limit our risk and not be in breach of our professional standards.
Disclaimer: This blog is for general purpose only. For advice on your specific situation, please contact a tax professional.