Applications for loans, health and life insurance coverage, government subsidy programs and even child adoption are predicated on verifying certain critical information. To gain some assurances that the information provided is accurate, lenders, providers, regulators and various other government and nongovernment agencies will often request third-party verification letters from a CPA firm.

These letters might ask a CPA to verify certain information that their client has previously provided or that he or she is simultaneously providing. Third parties typically ask that a CPA sign a verification letter before the third party commits to providing a loan, a government subsidy or health insurance, to name a few examples. When these requests are made, you'll want to get help from your CPA. 

Confidential Information and Matters of Solvency

CPAs are eager to address third-party requests, but there are two types, which come with important caveats: those requiring CPAs to provide confidential client information and those related to matters of solvency.

If a CPA receives a request from a lender or another third-party seeking verification of client information, the client should understand that the CPA cannot provide any confidential client information without signed, written consent. Likewise, obtaining a client’s consent to share tax return information creates an added complication because using a standard client consent form is not sufficient. In fact, it’s a crime. Internal Revenue Code Section 7216 dictates that CPAs use a specific format to obtain consent to disclose client tax return information to a third party.

Additionally, CPAs are precluded from responding to a requestor seeking any assurance on matters relating to solvency—or the ability for an individual or business to service its debt and meet its other long-term obligations. Matters relating to solvency are subject to legal interpretation under the Federal Bankruptcy Code and various state fraudulent conveyance and transfer statutes. Because these matters are not clearly defined in an accounting sense and are subject to varying interpretations, CPAs do not have suitable criteria to evaluate a subject matter or make an assertion. Lenders are often concerned with legal issues on matters relating to solvency; however, CPAs are generally unable to evaluate or provide assurance on these matters of legal interpretation. The attestation standards preclude CPA practitioners from giving any form of assurance on matters relating to solvency.

A CPA can, however, provide a number of other types of responses or activities that address the concerns outlined in a request.

Understanding Other Types of Requests

A lender or entity may request verification of:

• Self-employment status
• Income
• Number of employees
• Business ownership
• Business profitability
• Business sustainability
• Real estate purchase impact on business
• Business loan impact

For these kinds of requests, there are usually several ways a CPA can respond.

Determining the Proper Response

A CPA can provide a response that states factual information or they might need to provide a more formal report, assuming the CPA has performed sufficient procedures and has a basis for the report. A CPA may respond verbally or via email, form letter or other written channels.

Depending on the request, the CPA may need to provide additional services, such as performing:

• An audit, review or compilation of financial statements (see What is the Difference Between a Financial Statement Preparation, Compilation, Review and an Audit);
• An examination, review or compilation of pro forma financial information;
• An examination or compilation of prospective financial information; or
• Agreed-upon procedures and reporting, as long as the agreed-upon procedures do not provide any assurance on matters related to solvency.

For example, if a client seeks a loan that is contingent on a request for self-employment verification, a CPA may respond by performing an engagement to gather and provide the requested information. Or, if more assurance is needed, the CPA can perform an examination or review engagement. The amount of assurance required by the requestor will dictate the associated compliance costs.

If a lender or other third-party requestor makes an inquiry and/or you are not clear on the type of information they are requesting, please contact a CPA who can help you determine the best response or course of action to take.