As a trusted business advisor, CPAs are often seen by third parties, lenders, insurers, and realtors as sources of “comfort” with respect to the financial picture of the individuals that the third parties are considering for credit.
In many ways, this is a reaction to the lack of due diligence prevalent in the run up to the financial crises that began in 2007. It is natural for third parties to assume that CPAs, often viewed in their roles as auditors, will be in a position to provide audit-like comfort in other situations. These include requests for such information as: opinions on the solvency of a borrower, verifications of income or employment or ownership of a business, etc. Often these are requested of CPAs whose only interaction with the individual is the preparation of an annual tax return. As a result, despite the requests and pressure from third parties, the CPA is ethically prohibited from providing these “certifications” or “verifications.”
A CPA’s first ethical duty is to the public trust. A very strict set of ethical standards have been developed to ensure that the users of information from CPAs can rely on the information. Unfortunately, this level of reliance, which can vary depending on the level of service, is only available when CPAs perform certain services such as audits, reviews, or compilations of financial information. The standard of reliance does not apply to preparation of income tax returns, as the CPAs do not have a requirement, beyond due professional care, to validate the information on a tax return. In general the reliance is placed on the individual who provides the information. As a result, CPAs cannot provide any assurance on this information or the CPA would be violating professional ethics and subject to sanctions from the state boards of accountancy and the AICPA.
As a result, when third parties request such information, it’s important to understand that your client service professional is not being difficult when he or she resists signing a form provided by the third party. The CPA can, and many do, provide letters for these inquiries explaining the limitations related to providing tax services only. In almost all of these cases, the third party request is satisfied.
For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.