How CPAs should handle "comfort letter" requests from lenders, mortgage brokers.

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AICPA members have contacted the AICPA to clarify their professional ethical obligations when asked for "comfort letters" by lenders and mortgage brokers. Depending on how practitioners respond to such requests, they may be at risk for failing to comply with AICPA professional standards. In these situations, a number of CPAs may violate professional standards unknowingly; others may succumb to brokers' threats to undermine the CPA-client relationship. CPAs can ethically and effectively address these situations if they are aware of and stick to their professional obligations.

The letter at issue is usually associated with stated-income loans, which are mortgages that do not require borrowers to document their income. Such loans usually are sought by borrowers whose income sources are difficult to verify or fluctuate from year to year. Self-employed people and individuals with investment income or with sales jobs of varying commissions often apply for stated-income loans. Lenders, lacking documentation to support borrowers' income claims, take on the risk that borrowers' claims are inadequate. Because of the higher risk, lenders charge higher interest rates. To gain more comfort in extending loans, some lenders look to the borrowers' CPA for assurance or comfort about certain information. The information requested often includes assurance about the client's self-employed status, verification of income, profitability of the client's business, and the impact on a client's business if cash is withdrawn from the company.

In an effort to minimize their risk, brokers typically ask CPAs to vouch for their clients with a letter supporting clients' claims. If they arise, these situations can place you at risk in two ways. First, your response must be in compliance with professional standards. Secondly, if you point out to the broker that reporting on solvency in this situation would be unethical or that a request requiting examining a personal balance sheet and earnings forecast would be expensive, the broker may exert pressure by threatening to suggest the client change CPAs.

You can protect yourself against the risks associated with these situations, but first you must understand what is and is not permissible...

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