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Comfort Letters

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#1
COGS  
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Going to vent. Why do mortgage brokers think that CPAs can write letters saying that "it will not cause any financial burden" if so and so takes the working capital out of their company and all the other inappropriate requests that the put on us.

I am thinking that our profession really needs to push back. I am tempted to draft a letter to send to the SEC and the real estate licensing board stating that these businesses should be investigated for inappropriate underwriting by thinking a BS comfort letter is a good idea to request.

I don't write them in general. Granted if they just want to know how long they have been our client or something I do. Below is what our insurance carrier said to put on those letters. But really, we need a unified push back against the crap they think they can ask us to put on our letter head. Any lender that requests a comfort letter should be banned from lending for some number of years in my humble opinion.

We make no warranty or representation express or implied as to the accuracy or veracity of this information. You are not entitled to rely upon the information provided by us as either accurate or truthful and may not make release of this information to you a component of your reliance for purposes of extending credit to XXXX. By providing this information to you, we do not establish any independent relationship with you or between you and us upon which you may later make claim that you extended credit [or other financing decisions/options] to XXXXX in reliance upon our having provided you with this information.
 

#2
sjrcpa  
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#3
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Professional standards preclude CPAs from issuing letters with such language, see AT 9101. A few years ago my client's banker requested such a letter from me with wording regarding implications to solvency for the loan. When I declined, he told my client it was common practice and offered the name of several other accountants who he thought would be happy to issue such a letter. Fortunately my client sided with me, but the entire experience served to further lower my opinion of most lenders, both consumer and commercial.
 

#4
Andrew  
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What a terrible experience. I'm not saying this goes as far as blackmail ... but in effect the lender tried to have your client go elsewhere because you didn't want to do what the lender wanted you to do: writing a letter for your client and taking up a potential liability in case client defaults on loan. I wish the AICPA would take a firmer stand against these practices of lenders which try to make the CPA responsible for a loan default instead of the lender.
 

#5
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Oh boy have I had this request a time or two. I always find it ridiculous because essentially they're wanting to put the blame on someone in case the company becomes ineligible to pay back their obligation. I always tell them I can't write that but I am willing to write a letter explaining how the company has performed in congruence with their P&L with also saying I cannot express an opinion or guarantee the company will be able to satisfy any future obligations.

There may be other accountants out there who will do that but that 1)doesn't make it right or ethical 2) wait until one of those companies defaults and they come after the accountant. I bet that accounts E&O insurance isn't going to like the fact that they basically guaranteed the loan for them...
 

#6
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My engagement letters now state bankers and third-parties other than tax agencies are negligent for relying on tax returns for any purpose since the information reported on tax returns, as a result of the Internal Revenue Code and State Tax Codes, are often not representative of actual financial position or results.

I'll say the same if I ever issue another letter to a lender simply confirming I prepared a return. I place all burden of due diligence back on them.
 

#7
deniz  
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I find giving a hard no to strategic clients difficult. A foreign client wanted a $30 mil. US insurance policy. I wrote a letter saying I prepared a tax return according to US tax law and make no representation whatsoever as to whether it can be relied upon by third parties as I was not engaged in an audit. The insurance company wanted me to change the language, which I did not, but it got me through the politics of the situation. Just give them an audit fee order of magnitudes higher than your preparation fee and tell them you will be happy to audit them, they will go away.
 

#8
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deniz wrote:I find giving a hard no to strategic clients difficult. A foreign client wanted a $30 mil. US insurance policy. I wrote a letter saying I prepared a tax return according to US tax law and make no representation whatsoever as to whether it can be relied upon by third parties as I was not engaged in an audit. The insurance company wanted me to change the language, which I did not, but it got me through the politics of the situation. Just give them an audit fee order of magnitudes higher than your preparation fee and tell them you will be happy to audit them, they will go away.


I have a client trying to obtain a mortgage and the lender wants a CPA expense statement letter.
• CPA to provide an Expense Statement specifying business expenses as a percent of the gross annual sales/revenue (not a profit and loss nor balance sheet)
o Must include the following
 Preparer’s name
 How long has the preparer been completing the client’s financial statements
 Expense Factor percentage
 Preparer’s signature


I said no and now the lender wants to see a letter stating that "They're a strong growing business with steady income growth and expenses estimated not to exceed ( INSERT EXPENSE % ) of revenue".

Anyone seen anything like this before? This is on top of the usual self-employment verification.
 

#9
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Lenders will ask for all kinds of idiotic statements that they want "signed" or "certified" by a CPA, which is, of course, not something CPAs actually do.

Tell them to go pound sand.
Last edited by CaptCook on 21-Jan-2022 12:38pm, edited 1 time in total.
~Captcook
 

#10
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Zootematix wrote:I said no and now the lender wants to see a letter stating that "They're a strong growing business with steady income growth and expenses estimated not to exceed ( INSERT EXPENSE % ) of revenue".


I wouldn't hesitate to respond to the lender that assertions regarding solvency is a violation of AICPA professional standards and an ethical violation. What they're asking me to do might bring sanctions down on me or cost me my license.

They're way out of line. They need to do their own due diligence but they don't want to put in the time or shoulder the cost.
 

#11
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Zootematix wrote:
I have a client trying to obtain a mortgage and the lender wants a CPA expense statement letter.


Double HELL no. I would respond to both the client AND lender and suggest they find a new lender with ethical and reasonable expectations if alternative methods of obtaining underwriting information cannot be identified by current lender. The current lender is asking you to do something that is unethical and puts your license at risk.

I have done this in the past and it is amazing how quickly the lender responds with "we have what we need, thanks." And I have yet to have a loan denied by a lender for me not providing information. :roll:
 

#12
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CornerstoneCPA wrote:
Zootematix wrote:
I have a client trying to obtain a mortgage and the lender wants a CPA expense statement letter.


Double HELL no. I would respond to both the client AND lender and suggest they find a new lender with ethical and reasonable expectations if alternative methods of obtaining underwriting information cannot be identified by current lender. The current lender is asking you to do something that is unethical and puts your license at risk.

I have done this in the past and it is amazing how quickly the lender responds with "we have what we need, thanks." And I have yet to have a loan denied by a lender for me not providing information. :roll:


I want a letter from your doctor saying he believes you will live another 30 years as that is the length of the mortgage.

These brokers are scum of the earth.
 

#13
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Had a call from a lender last week, which went to voicemail (I don't answer the 'phone whilst at lunch). I wrote to the client - a good B client - to tell him I'd need formal permission and that I charge for my time. Suddenly the lender found other ways to verify whatever they needed me to verify. I felt uncomfortable quoting a fee but the client is good with it. What concerned me is that the voicemail said that they only needed to "verify on the telephone." If the call had been recorded, I wonder where that would have ended up.
 

#14
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SumwunLost wrote:Had a call from a lender last week, which went to voicemail (I don't answer the 'phone whilst at lunch). I wrote to the client - a good B client - to tell him I'd need formal permission and that I charge for my time. Suddenly the lender found other ways to verify whatever they needed me to verify. I felt uncomfortable quoting a fee but the client is good with it. What concerned me is that the voicemail said that they only needed to "verify on the telephone." If the call had been recorded, I wonder where that would have ended up.


I've had those calls. Wells Fargo, if memory serves.
Until I have authorization from a client, my response on the phone was: "Yes, that is my client. I can't provide any other information until they provide me authorization to speak with you."
~Captcook
 

#15
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southparkcpa wrote:
CornerstoneCPA wrote:
Zootematix wrote:
I have a client trying to obtain a mortgage and the lender wants a CPA expense statement letter.


Double HELL no. I would respond to both the client AND lender and suggest they find a new lender with ethical and reasonable expectations if alternative methods of obtaining underwriting information cannot be identified by current lender. The current lender is asking you to do something that is unethical and puts your license at risk.

I have done this in the past and it is amazing how quickly the lender responds with "we have what we need, thanks." And I have yet to have a loan denied by a lender for me not providing information. :roll:


I want a letter from your doctor saying he believes you will live another 30 years as that is the length of the mortgage.

These brokers are scum of the earth.


New update.

Lender emailed my client stating that this expense request will not be audited by anyone at the bank and will not be shown to anyone. I pushed back very hard and the lender says the deal will not fund without me expressly stating that the expenses of the business will not be over X and the revenue of the company is increasing and the company is financially strong.

I'm ready to lose the client because they will lose their rate lock. I offered other lenders and they are adamant about not losing the rate lock. I had a frank conversation with the client stating that it's a absurd that a CPA letter is the reason the lender won't underwrite the deal.

Any advice?
 

#16
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I would explain the situation and offer to connect the client with the other lenders you mentioned. Make the situation as easy and quick as possible for the client.

If I had a lot of free time and felt strongly enough, I might file a formal complaint. The lender is effectively demanding that you provide assurance regarding solvency, which is a violation of AICPA professional standards and therefore an ethical violation.
 

#17
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ManVsTax wrote:I would explain the situation and offer to connect the client with the other lenders you mentioned. Make the situation as easy and quick as possible for the client.

If I had a lot of free time and felt strongly enough, I might file a formal complaint. The lender is effectively demanding that you provide assurance regarding solvency, which is a violation of AICPA professional standards and therefore an ethical violation.


Client didn't want to talk to other lenders because they are self employed.
It's just frustrating being the roadblock to a client's loan because the lender is terrible.

How did this become a thing to force a CPA to take responsibility for underwriting?
 

#18
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You're not the roadblock,the lender's unreasonable request is.
Make that real clear to your client and the lender. There is a possibility they don't want to fund the loan and have made you out to be the scapegoat by making a request you can't fulfill.
~Captcook
 

#19
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Zootematix wrote:Client didn't want to talk to other lenders because they are self employed.


You and the lender are at an impasse. The client is either going to need a new tax advisor (moreover one willing to meet the lender's demands) or a new lender.

You should put the ball in the client's court. Here's what I'd do...email the client, explain that what the lender is asking me to do is a violation of AICPA professional standards, and that I can't write such a letter. Include a link to the relevant authority. Offer to connect the client with other lenders. If that is not an option or the client doesn't want to do that, suggest that we part ways.

Ultimately you want to convey that you have the client's best interest in mind and want to provide him with the information necessary to make a decision as quickly as possible.
 

#20
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CaptCook wrote:my response on the phone was: "Yes, that is my client. I can't provide any other information until they provide me authorization to speak with you."
That sounds like an unallowed client disclosure.
Dave

Taxation is the price we pay for failing to build a civilized society. ~ Mark Skousen
 

#21
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SlipperyPencil wrote:
CaptCook wrote:my response on the phone was: "Yes, that is my client. I can't provide any other information until they provide me authorization to speak with you."
That sounds like an unallowed client disclosure.


It's not.
~Captcook
 

#22
MikeH  
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In California, it is an unallowed client disclosure.
Mike Hartfield
Canyon Country, CA & Bullhead City, AZ
CPA in California
Office: 661/309-4681 Cell: 818/433-5359
 

#23
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MikeH wrote:In California, it is an unallowed client disclosure.


This sounds a bit strong; can you provide a cite?
 

#24
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The sooner we stop responding to these ridiculous requests, the sooner they'll stop asking.

Dear Lender:

I hope all is well. As discussed per conversation with Client on XX/XX/XX22, in accordance with guidance issued by the American Institute of Certified Public Accountants (AICPA) and per consultation with our professional liability insurance provider, XXX CPA Firm does not currently, as a matter of policy, issue comfort letters (also referred to as "CPA letters") or provide written or verbal confirmation and/or verification of financial or other information.

Per the position paper issued by the AICPA on 5/30/2014, please note the following:

“Bank lenders and brokers often seek to assess a borrower’s creditworthiness and verify the accuracy of information provided to them by requesting that the borrower’s CPA corroborate certain financial information presented on a tax return. In most cases, the CPA is asked to corroborate tax return information by providing:

- a confirmation letter containing specific language;
- a verification statement certifying certain information presented on the tax return; or
- certain information on a designated form.

Tax returns are prepared by a CPA based on the client’s information and representations, which are neither audited nor verified by the CPA. Tax return preparation standards for due diligence under both Treasury Department Circular No. 230 and the AICPAs Statements on Standards for Tax Services generally allow the CPA to rely on information furnished by the taxpayer. However, these standards are not sufficient if the CPA is being asked by a lender or broker to validate the information furnished by the taxpayer, or to provide confidence in the accuracy or sufficiency of the information provided by the taxpayer for reporting on the tax return. For a CPA to validate or certify information reported on a tax return without performing additional procedures would constitute a violation of professional standards, resulting in licensure implications for the CPA.”

Please note that select lenders do not require comfort letters and/or verifications/confirmations to be provided for purposes of underwriting. Accordingly, if you encounter issues in moving forward with your current loan application, it may be prudent to seek out the services of an alternate lender.

Thank you for your attention to this matter. Please contact us with any questions that you may have.

Very truly yours,
CPA
Even more of my antics may be found on YouTube:
https://www.youtube.com/channel/UCXDitB ... sMwfO19h7A
 

#25
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Spoke to a lender today who demanded I write an expense ratio comfort letter stating my client will keep expenses under 10%.
No idea what that means. I told the lender no way I'm writing that and no CPA will. He told me he every lender requires it and has a network of 1500 CPAs who will write it. I responded that my friend a competitor hard money firm will fund the deal without it. He responded that he can get the letter requirement waved.
freaking ridiculous to even ask me. Worst part, my client pays every month late.
 

#26
Eduardo  
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Have a relatively new client (young guy) who currently owns three operating businesses, is starting another business, and also has an entity that owns both commercial and residential real estate. He got in with a lender who wanted me to write a letter stating that taking funds from the business accounts won't affect the operations of the businesses - told him there's no way that I can write that letter, and sent him the relevant authority detailing this. He was real cool about it and found another lender who's local.

Didn't want to piss the guy off as he's going to be a real good client, but he understood where I'm coming from and told the other lender to pound sand.
 

#27
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Zootematix wrote:Spoke to a lender today who demanded I write an expense ratio comfort letter stating my client will keep expenses under 10%.


Dear Lender,

I am in receipt of your request. In my current capacity of being a contracted advisor to X Company, I am not involved in management decisions and therefore cannot make any representation that the company will be in future compliance with this proposed mortgage covenant. However, if Y Lending Company hired me to be the CFO of X Company, I would be able to perform these management duties for you. I will require a base salary of $180,000 per year with three weeks' paid vacation, a 20% bonus payable on meeting said covenant, and we will need to negotiate a golden parachute payment in case of termination.

Please let me know when the employment agreement has been drafted so that my attorney can review it.

Love,
Zootematix

--
All joking aside, as you recognized, these letters aren't a requirement. Of course, the less ethical ones will wait until the last minute to get this letter in the hopes that we'll concede to the "deadline". Just be professional and make sure you have a couple alternative lenders in your pocket so that you return the pressure to the person fighting for the commission.
 

#28
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I have not had a SINGLE client lose out on a loan due to my refusal to provide a comfort letter. They're empty threats by bankers that are complete morons and if they do allow a loan to fall through from it, you need to escalate it to their superiors--there are ALWAYS alternatives.

Here is what I now include in my engagement letters:

You agree to indemnify and hold us harmless with respect to all claims arising from the use of the tax return(s) prepared under this engagement for any purpose other than filing with Federal and/or state and local revenue agencies. Tax returns are not suitable documents for obtaining credit since tax regulations may cause tax returns to not adequately or correctly reflect the actual income and cash flows of Client. It is the sole responsibility of a lender or other third-party to perform proper and sufficient due diligence and it should be deemed an act of absolute negligence for any party other than a tax agency to rely solely or heavily on any tax return for any purpose.

...

No “lender comfort letters” will be issued by this Firm, including but not limited to confirmation or attestation of amounts, financial position of Client, ability to pay, etc. With an added non-refundable fee of $400 (four hundred dollars and zero cents) payable in advance, Firm will confirm having prepared a specific tax return, and such acknowledgement to a lender will contain all necessary language to indemnify and protect Firm against legal action by the lender. Lenders only ask for “comfort letters” to have as many parties as possible to hold legally liable if a loan goes into default or because of their own incompetency as lenders. Any such correspondence with a lender requesting such information will clearly communicate such negligence in relying on a tax return in determining, in whole or in part, the credit worthiness of applicant(s) or their ability to repay a debt."
 

#29
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missingdonut wrote:
Zootematix wrote:Spoke to a lender today who demanded I write an expense ratio comfort letter stating my client will keep expenses under 10%.


Dear Lender,

I am in receipt of your request. In my current capacity of being a contracted advisor to X Company, I am not involved in management decisions and therefore cannot make any representation that the company will be in future compliance with this proposed mortgage covenant. However, if Y Lending Company hired me to be the CFO of X Company, I would be able to perform these management duties for you. I will require a base salary of $180,000 per year with three weeks' paid vacation, a 20% bonus payable on meeting said covenant, and we will need to negotiate a golden parachute payment in case of termination.

Please let me know when the employment agreement has been drafted so that my attorney can review it.

Love,
Zootematix

--
All joking aside, as you recognized, these letters aren't a requirement. Of course, the less ethical ones will wait until the last minute to get this letter in the hopes that we'll concede to the "deadline". Just be professional and make sure you have a couple alternative lenders in your pocket so that you return the pressure to the person fighting for the commission.[/quote

I actually had one loan fall through because I refused to write that the down payment would not affect operations.
Worst part besides not being allowed, the down payment obviously significantly impacted operations.
Nearly lost a great client over this.. Honestly having backup lenders saves me. But how is this even a normal thing? You can't tell me attorneys have to deal with this. ]
 

#30
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Zootematix wrote:I actually had one loan fall through because I refused to write that the down payment would not affect operations.
Worst part besides not being allowed, the down payment obviously significantly impacted operations.
Nearly lost a great client over this.. Honestly having backup lenders saves me. But how is this even a normal thing? You can't tell me attorneys have to deal with this.


I would imagine that a mortgage broker would be less likely to do this to an attorney... think of the type of letter an attorney could reply with. Allegations made were untrue and defamatory against the attorney, that the lender must cease making further untrue statements, and that the attorney will consider whether their statement has been retracted to the client in writing before X date when making their next course of action. They could probably write that letter in their sleep, to be honest.
 

#31
LDCPA  
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Zootematix wrote:
missingdonut wrote:
Zootematix wrote:Spoke to a lender today who demanded I write an expense ratio comfort letter stating my client will keep expenses under 10%.


Dear Lender,

I am in receipt of your request. In my current capacity of being a contracted advisor to X Company, I am not involved in management decisions and therefore cannot make any representation that the company will be in future compliance with this proposed mortgage covenant. However, if Y Lending Company hired me to be the CFO of X Company, I would be able to perform these management duties for you. I will require a base salary of $180,000 per year with three weeks' paid vacation, a 20% bonus payable on meeting said covenant, and we will need to negotiate a golden parachute payment in case of termination.

Please let me know when the employment agreement has been drafted so that my attorney can review it.

Love,
Zootematix

--
All joking aside, as you recognized, these letters aren't a requirement. Of course, the less ethical ones will wait until the last minute to get this letter in the hopes that we'll concede to the "deadline". Just be professional and make sure you have a couple alternative lenders in your pocket so that you return the pressure to the person fighting for the commission.[/quote

I actually had one loan fall through because I refused to write that the down payment would not affect operations.
Worst part besides not being allowed, the down payment obviously significantly impacted operations.
Nearly lost a great client over this.. Honestly having backup lenders saves me. But how is this even a normal thing? You can't tell me attorneys have to deal with this. ]


Since you're in LA area, can you share or PM some reputable lenders to refer clients?
TIA
 

#32
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I met with a mortgage broker client of mine today and asked him about these letters.
His first response was: "Well, I don't ask you any more because I know you won't provide one."
He did go on to say that the broker asks for it to illustrate that they've performed greater due diligence and he'd never heard of any CPA being pursued because of it. He did say that for those loans where they couldn't check the "CPA letter rec'd" box, they have had to repurchase those loans from the underwriter on occasions.

That all makes sense to me, but doesn't compel me to change my approach. Just thought you all might be interested in another perspective.
~Captcook
 

#33
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I appreciate you sharing that perspective.

It sounds like your mortgage broker is confirming that the letters are definitely a part of the underwriting decision. Even if these letters haven't been used to pursue CPAs in the past, it is no guarantee that it won't happen in the future -- and the mortgage broker can't promise that in the same way that we can't write a letter promising that our client's future expenses will be less than 10% of revenues, etc.

I'm in the same boat... I'm not going to change my approach to these requests.
 

#34
LDCPA  
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I almost got burned on a comfort letter.
A big client with multiple entities asked for a comfort letter. He was an asshole all around, but brought in a lot of fees, so I tolerated him for a while which in retrospect was a mistake. He was very pushy and wanted wording in the letter that I wasn't comfortable with. I almost caved, but decided it wasn't it. I ended up issuing a standard boilerplate letter that I pulled from my insurance company website saying that I prepared the tax return for such and such and that was it. The client wasn't happy, but accepted it.
A year later this idiot tried to get out of paying my fees (unrelated to the comfort letter) by threatening to report me to the state board. I told him he can report all he wants, my work was up to the standards and I stand behind it. Had I issued the comfort letter the way he wanted it, then I would be worried.
Obviously he's no longer a client. After this experience I will never issue a comfort letter unless I'm engaged to do the necessary work to back up any statements in the letter.
 

#35
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CaptCook wrote:He did go on to say that the broker asks for it to illustrate that they've performed greater due diligence and he'd never heard of any CPA being pursued because of it.


I think that statement is BS and I certainly would not rely on their statements. If our professional society (AICPA) and insurers are adamant that we do not respond to comfort letters, obviously it HAS become a matter of legal dispute on numerous occasions.
 

#36
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missingdonut wrote:I would imagine that a mortgage broker would be less likely to do this to an attorney... think of the type of letter an attorney could reply with. Allegations made were untrue and defamatory against the attorney, that the lender must cease making further untrue statements, and that the attorney will consider whether their statement has been retracted to the client in writing before X date when making their next course of action. They could probably write that letter in their sleep, to be honest.


As could I, and I'm not even a lawyer. I guess I have just been very well trained by a lawyer I quite respect. I suspect lenders somehow think tax preparers, including CPAs, will just cave and not fire back with legal action.

Check PFZ--it is apparent some tax preparers here do not like the wording I include on this matter in my tax engagement letters, but I am doing it for a reason--to be proactive and make it very clear to clients that they signed to it well in advance of me preparing tax returns. If they failed to read, that is not my issue (just like ignorance of the law is not an excuse).
 


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