Accountants' letters are always risky business, in the vast majority of cases, they are requested as the financial accounts or tax returns do not support the lending. The lender then seeks to cover their risk by requesting an accountant to sign off on the borrower's capacity to pay, effectively transferring all the risk for non-repayment of the loan to the accountant. The bank is basically relying on the accountant's professional indemnity (PI) insurance to pay out if the borrower defaults on the loan. In this eventuality, the bank sues the accountant, after all, they supplied the letter, right??? Then the PI insurer has to decide if they will pay the claim or not and if they do not the bank rolls out its legal team. If the bank cannot recover the funds fully from the insurance, then they can take action against the accountant and seek compensation from them.
We were recently asked to sign an accountant's letter that included at least 2 false and 1 highly ambiguous statement. We have two issues with this:
Want to know more - listen to CPA Australia's Keddie Walker's interview on this subject listen to the podcast or read the full transcript here.