Third Party Verification RequestsThe Letter of ComfortWhat can the CPA provide?

Name of presenterAudienceDate

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OverviewCommon Verification RequestsResponding 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

FAQsSummaryQuestions?

Today’s Agenda

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Overview

Seeing an Increase in Requests

Not a new issueFor 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 statusVerification of income from self-employmentVerification of a borrower’s business ownership percentageProfitability or sustainability of a self-employed client’s businessThe impact on a self-employed client’s business if money is withdrawn to fund the down payment on a real estate purchaseValidation of certain information presented on a tax return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 SOLVENCYConfidential client information without client approvalClient tax information without signed, written consent in IRS-specified formatCertification 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 ServicesCPAs 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 serviceCPA assists management in presenting financial informationDoes not contemplate performing inquiry, analytical procedures, or other proceduresNo assurance that there are no material modifications that should be made to the financial statementsThe 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 assuranceA review does not assess internal control, fraud riskA review does not test accounting records or other proceduresThe 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 riskObtain 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 needsWorking as a team, the lender, the CPA and the borrower can determine how to best meet everyone’s needs

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Questions?