Third Party Verification Requests - PowerPoint Presentation

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Third Party Verification RequestsThe Letter of Comfort

What can the CPA provide?

Name of presenter

Audience

DateSlide2

OverviewCommon Verification RequestsResponding to RequestsWhat can the CPA provide?What can’t the CPA provide?Professional Services/ Additional ProceduresAdvisory/ consulting servicesAgreed-Upon ProceduresAttest engagements and Levels of AssuranceFAQsSummaryQuestions?

Today’s Agenda2Slide3

Overview3Slide4

Seeing an Increase in RequestsNot a new issueFor banksContinued tightening of credit underwriting standardsFor individual and businesses As economy improves more individuals and business owners are seeking funding Increase in diversity of:PurposeNatureScopeIntent

Small business owners are impacted the mostSlide5

Common Verification Requests5Slide6

Examples of Borrower Information RequestedConfirmation 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or sustainability of a self-employed client’s businessThe impact on a self-employed client’s business if money is withdrawn to fund the down payment on a real estate purchaseValidation of certain information presented on a tax return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 form7Slide8

Responding to Requests8Slide9

What Can the CPA Provide?9Slide10

Factual InformationProfessional services that comprise additional proceduresWhat 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 preparation

No assurance to the validity of the information provided by the client

Copy of articles of incorporation

Copy

of a

rticles of organization

Financial projections

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 report

No assurance on matters related to solvency

Time/Cost

Lowest amount of work – generally quick turnaround; Low cost

Involves more work/time;

more costlySlide11

What Can’t the CPA Provide?11Slide12

CPAs Cannot ProvideAssurance 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 CPASlide13

Professional Services/ Additional Procedures13Slide14

Understanding Lender NeedsWhat 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 borrowerProfessional 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 projectionsFor 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 matterThis subject matter and related procedures must be clearly defined and relatively limited in scopeSubject 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 CompilationMost 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 provided17Slide18

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 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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FAQs20Slide21

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 RequestedQuestion:Can a CPA just respond to a request if he has knowledge of the information requested? Response: YesA CPA can respond to a form letter or email provided that the information is:Factual informationNot expressing an opinion unless attestation performedNot providing an attestation on solvency

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Summary24Slide25

In Conclusion…Credit decisions are based on a lender’s exercise of due diligence This includes considering multiple factors and informationThe 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 needs25Slide26

Questions?26