Your CPA is often the first person you think of to help with financial issues. While most of the time they can help, there are instances when the information requested can create unique challenges.  One of those times is when a request for a third-party verification letter comes across his or her desk.

The third-party verification letter, sometimes called a “comfort letter,” usually comes from lenders, employers, and even insurance providers. The most common information requests are to:

  • Verify income
  • Verify if an individual owns a business or is self-employed
  • Provide assurance that a business will be profitable in the future.

Frequently they are just looking for the CPA to verify the accuracy of information. While this may seem like a simple request, it can lead to potential issues.  The CPA must consider important factors before responding, such as Confidentiality.  The “Confidential Client Information Rule” of the AICPA Code of Professional Conduct (ET §1.700.001) establishes that confidential client information may not be disclosed without the client’s specific consent. Further, Sec. 7216 imposes criminal penalties and fines on any return preparer who discloses taxpayer information without specific written consent from the client using specific language and formatting as outlined in Rev. Proc. 2013-14.

At the core of these requests is the question of attesting to the accuracy of the information. Lenders, employers, government agencies, etc. are all trying to determine if the client has sufficient funds, or is able to even service a certain level of debt. CPAs often receive requests from individuals and businesses to submit copies of tax returns to potential lenders.  CPAs can only confirm the facts as they understand them based on the information provided by the client. This can lead to a professional liability issue if it is misconstrued how the figures were determined. Due to the regulations accounting firms must abide by, it is significantly less complicated for the accountant to send a copy of the tax return to the client, which they can in turn forward to the third party requesting the information.

As you can see the challenges facing an accountant are often complex, and this article is just skimming the surface. It is important to keep in mind that most third parties requesting this type of information are usually not aware of the standards to which CPAs must adhere.  Frequently, clients view these as simple requests.  If you run into a situation where you need help with a third-party verification letter, the best course of action is to reach out to your CPA and find out how he or she can help. At least if they can’t directly provide information, they will certainly steer you in the right direction.

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