Third-party verification requests.

• Author: Oppe, Ami

As a trusted adviser, a CPA is often the first resource clients turn to for many financial issues. While often these questions are in the context of a service the CPA may already be engaged to provide (tax compliance, estate planning, etc.), it is not uncommon to receive other requests that seem simple but can carry unique challenges. One such request is for a third-party verification letter, often referred to as a "comfort letter."

Comfort letter requests increasingly come from a wide variety of sources, most commonly lenders, insurance providers, employers, and various government agencies. These requests can range from simple confirmations to requests that a CPA attest to the accuracy of a variety of information. Most commonly, these requests may ask that a CPA:

* Attest to the accuracy of an individual's income;

* Attest that an individual owns a business;

* Verify that an individual is self-employed;

* Provide assurance that a business will continue to be profitable; or

* Provide commentary on the effect that additional debt or a withdrawal of funds from a business would have on its continued operations.

Clients and the parties requesting those letters often turn to the CPA because they believe the CPA can provide reasonable assurance to the facts requested. Likewise, the CPA profession is client-centric and, as a result, the first inclination may be to view a response as a low-risk way to provide good client service. However, the combination of these expectations can lead to potential issues. These requests carry important considerations, both legal and ethical, that a CPA must consider before responding and in crafting an appropriate response.

Confidentiality

Paramount to any response is first considering the standards related to client confidentiality. The "Confidential Client Information Rule" of the AICPA Code of Professional Conduct (ET [section]1.700.001) establishes that confidential client information may not be disclosed without the client's specific consent. Further, Sec. 7216 imposes criminal penalties and fines on any return preparer who discloses taxpayer information without specific written consent from the client using specific language and formatting as outlined in Rev. Proc. 2013-14.

Businesses often turn to their CPA to provide tax return information as a part of these requests as a matter of convenience. It is often simpler and less time-consuming for them to ask the CPA to pull this information from his or her...