By Duncan B. Will, CPA, ABV, CFF

When CPA firms received requests from lenders seeking creditworthiness verifications for clients who had requested Paycheck Protection Program (PPP) loans, they were often unsure of how to respond. Many lenders stated that they needed the borrower’s accountant to sign financial statements supporting the loan application. Government regulations, however, did not require this step.

Accommodating these requests is not required, and a CPA providing assurances regarding a borrower’s solvency or ability to repay the debt could violate professional standards. This advice is valid not just for PPP loans, but also for all similar circumstances in which a lender wishes the borrower’s CPA to provide creditworthiness feedback, sometimes called an assurance letter.

In fact, CPAs should not communicate directly with their clients’ lenders. If a CPA chooses to do so, however, include wording to specify the services performed, point out that those services did not contemplate accommodating the bank’s request, and indicate the lender would need to rely on its own underwriting procedures. Prior to the issuance of Statement on Standards for Accounting and Review Services (SSARS) No. 21 in October 2014, CPAs were required to perform a compilation of financial statements engagement when they chose to accommodate a lender’s requests for financial statements. AR-C Section 70 of SSARS No. 21 introduced the preparation of financial statements engagement. CPAs who perform this service typically do not issue a report; instead, they prepare financial statements with a legend on each page that clearly states no assurance is provided.

CPAs can issue a disclaimer report when engaged to perform a preparation of financial statements, but this should be discouraged. By using the disclaimer report option, you eliminate the anonymity associated with the typical legend approach, which does not require a disclaimer.

AR-C 70 mandates that each page of prepared financial statements and related disclosures include a statement indicating no assurance is provided. It does not prescribe specific language. CAMICO recommends use of the legend “No CPA provides any assurance on these financial statements” so financial statement readers are clear regarding the CPA’s association with the financial statements and don’t mistakenly interpret “no assurance is provided” to mean the client isn’t providing assurance but the CPA is.

A scenario when the lender requests financial statements signed by the CPA is the exception that defines the rule regarding disclaimers. If the lender insists on receiving a “financial statement signed by the borrower’s accountant,” instead of performing a compilation engagement, a CPA can accommodate the request by performing a preparation engagement and issuing a disclaimer report. CPAs choosing this path will need to obtain a signed engagement letter detailing the client’s and the CPA’s mutual responsibilities. Neither the compilation report nor the disclaimer report provides assurance, but the language in a disclaimer is concise. If the firm is not already subject to peer review, the engagement would not subject the firm to peer review. When compelled to sign a report and a disclaimer is added, the legend is no longer required. However, a “belt and suspenders” approach may be prudent: in addition to the disclaimer report have each page of the financial statements and disclosures include the aforementioned legend.

An illustrative disclaimer might read as follows:

The accompanying financial statements of [entity] as of and for the year ended [date], were not subjected to an audit, review, or compilation engagement by [me/us], and [I/we] do not express an opinion or a conclusion, nor provide any assurance on them.

[Signature of accounting firm/accountant]
[Accountant’s city and state]
[Date]

To be clear, CPAs may opt to perform a compilation engagement instead of performing a preparation engagement. However, those performing compilations will be subject to peer review, must issue a report (before SSARS No. 21, management-use-only compilations did not require a report), must consider whether they are independent, and, if not independent, must specify in the compilation engagement letter and compilation reports that they are not independent. If CPA independence is impaired, AR-C 80 requires you to indicate in the report each reason why independence is impaired. This opens up the risk of inadvertently omitting a reason.

Duncan B. Will, CPA, ABV, CFF, is loss prevention manager, accounting and auditing specialist, with CAMICO. He can be reached at dwill@camico.com.

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