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Negative Engagement Letters

Why Engagement Letters are Essential to your Practice

Client Comfort Letter - Sample Wording

A.K.A. Third-party verification

An ongoing trend, has been for Financial Institutions, Regulators, or other third parties, to request accountants to provide "comfort letters" on their client's behalf.  Often, these letters are for verification of financial status when a client is self-employed, but may request:

- Confirmation of client's self-employed status
- Verification of income
- Verification of business ownership
- Verification of profitability, or sustainability

The AICPA clearly states that providing assurance on matters related to solvency is an ethical violation for a CPA. So, what is a CPA to do when approached by a client for this information?  You want to maintain your client relationship, but do not want to expand your liability, or violate AICPA ethics.

Ralph Picardi, Esq has provided potential sample wording for response to such inquiries, but recommends that you read the following thoroughly before responding to such inquiries.

The following example wording would be a perfectly appropriate limited response to a lender or broker's request for credit-worthiness information. However, the most protective thing for the accountant to do, especially in a state like California (with very restrictive law on the ability of third parties to sue accountants), would be to decline to respond to the lender's request. In California, unless the third party can demonstrate that there is close and direct contact between itself and the accountant, it will be difficult to establish the requisite standing to bring a lawsuit alleging detrimental reliance on the accountant's work product or representations.

By responding to the lender or broker's request for a credit worthiness letter, the accountant would be helping the lender build its case for close and direct contact. So, unless this is a client that the accountant does not want to lose, and would lose if the accountant didn't provide the requested response, we advise against responding to the request, and advise the accountant to direct the lender or broker to the client for the needed information.

Example Comfort Letter (Word document)

In terms of providing a more formal response to a client who is requesting verification in matters related to solvency, you may refer to AICPA Interpretations of Secton 101.

If you have more questions regarding Client Comfort Letters please contact us directly.

NAPLIA has now compiled all of our available Engagement and Client Letter Sample Wording into one comprehensive booklet.  You may also download indvidual sample engagement letters, and wording from our exclusive website, www.engagementletters.com

These example engagement letters are intended solely for general educational purposes. They are not intended for the purpose of providing specific legal, accounting, or other professional advice to any particular recipient or with respect to any particular jurisdiction. The author, publisher, and distributor of this document (1) make no representations, warranties, or guarantees as to its technical accuracy or compliance with any law ( federal, state, or local) or professional standard; and, (2) assume no responsibility to any recipient of this document to correct or update its contents for any reason, including changes in any law or professional standard. Before using any engagement letter in your practice, you should formally retain the counsel of an attorney knowledgeable as to the accounting industry, your practice, and the laws of any jurisdiction(s) within which you conduct your practice to ensure the documents maximum usefulness and compliance with applicable laws and professional standards.