Yes, the accountant’s letter – as a business owner, when you’re approaching your bank or lender for a home loan, business loan or other kinds of financing, you will often be told you need one of these. Indeed, clients often approach us for an accountant’s letter. Truth be told, we feel quite privileged that a letter from us could often have a significant bearing on your matters.

Such a letter might be needed when you are purchasing real estate, to excuse a key employee from jury duty or when you are applying for a government grant.

There are, however, some limitations to the sorts of things we can sign – this article explains what we can, can’t and won’t do.

Accountant’s letters we CAN provide

As a guide, we are always able to provide letters that are statements of fact or based on historical data. For example, we can provide accountant’s letters to support:

  • Bank loan applications – for which we can:
    • Confirm that any ATO debts are in payment arrangements
    • Confirm that tax returns have been lodged and are simply pending processing
    • Provide an explanation of the business structure
    • State that a particular entity is not trading and has no liabilities.
  • Jury duty excusal – for which we can confirm that the business owner is required for the operation of their business.

Accountant’s letters we CANNOT provide

Occasionally, we are asked to provide letters that involve a prediction of the future or making a judgement. For ethical, licensing and insurance reasons we are unable to sign these sorts of letters. Examples of statements we cannot make include:

  • Whether your business is solvent and will remain solvent
  • Confirmation of your future earnings
  • Your ability to service a loan
  • That an asset (such as a motor vehicle) will be used predominantly for business purposes when there’s no evidence to suggest that it will be.

We are well aware that there are many times when such a letter appears to be critical for the provision of a loan. Likewise, we understand that this can be a stressful time, especially if you are after an accountant’s letter for a home loan.

We always look to help you and do so wherever we can, so we need to explain about those times when our hands are tied.

Why is your lender asking for an accountant’s letter that makes future predictions?

The reason you’re being asked for an accountant’s letter that makes predictions about the future is generally because you’ve been unable to supply sufficient evidence to the lender about your current or historical income. Alternatively, it may be that your past tax returns show too little income to get the loan across the line.

By asking for a letter, the financier is attempting to circumvent asking you for more evidence. Instead, they’re simply assigning some responsibility for assessing your application to your accountant, i.e. to us.

A multitude of problems arises from this. Not the least of these problems is that it presents us with an unavoidable conflict of interest. How? We are your accountants and we want the best for you, so we can’t possibly be unbiased when signing such a letter.

Why can’t we sign letters that involve predictions or judgements?

There are basically three key reasons that we’re unable to put our name to letters based on prediction or judgment:

1. Our business rules: In our firm, we have an unbreachable principle that all clients matter, but no single client is worth risking the firm itself.

This principle is intended to remind our entire team that one breach of the rules can put all of our clients at risk – not only the one in question.

We hope this provides you some comfort too. Your own affairs aren’t being put in jeopardy by us acting improperly with another of our clients.

We’ve heard many unfortunate stories of an accountant’s entire clientele being audited simply because of one careless, yet serious, mistake.

It follows that in order to ensure all our clients are protected from such events, we must consistently adhere to industry regulations. This brings us to reasons two and three.

2. Professional membership rules: We are members of Chartered Accountants Australia and New Zealand (CA ANZ). Among other benefits, we are proud to hold this membership because you can only attain it through rigorous education and reputational integrity. It is a mark of quality and standing.

As such, we must adhere to the CA ANZ code of ethics and other practical guidance.

CA ANZ expressly states that an accountant’s letter to a financier involving predictions or judgments should be treated as very high risk. It would be very easy for such a letter to breach a series of CA ANZ rules (such as the Code of Ethics, APES 210, CR 2A) and the National Credit Act.

Any breach would put our other clients at risk because our entire CA ANZ registration would be called into question.

3. Insurance difficulties: Professional indemnity insurance is an important aspect of our registrations with CA ANZ and the Australian Taxation Office.

Accountant’s letters regarding predictions or judgments are not covered by the typical professional indemnity policies offered to accountants. As such, they are too hazardous for us to provide.

Alternatives to an accountant’s letter for home loans and similar cases

Every client’s situation is unique. As such, we always take the time to discuss your specific circumstances and address your questions. After that, we’ll go over your options. These may include:

  • Suggesting you push back against the financier by saying that “it is not the responsibility of my accountant to perform such an assessment”. It’s amazing how quickly many lenders simply drop their request at this point and proceed with your application regardless.
  • If your loan approval is contingent upon evidence of your current-year income, we could prepare interim (year-to-date) financial statements.
  • We can provide factual statements to the lender, such as:
    • “On 1 July 2022, I lodged an income tax return for Mr. A. Smith for the financial year ending 30 June 2022 that declared income of $100,000.”
    • “On 1 July 2022 my client, Mr. A. Smith, advised me that the Nissan Patrol that they are seeking to purchase will be used exclusively for business purposes.”

Summing up accountant’s letters for home loans and other financing

Make no mistake, an accountant’s letter is an important document and one we prepare regularly, but there are serious boundaries around their correct use. If your bank or lender has told you that you need an accountant’s letter for a home loan, business loan or similar, you should be aware of these limitations before you agree to seek one. If you have any questions about how this applies to your circumstances, please get in touch. Remember, we’re here to help, not hold you back.