Essential Tips for Accountants: How to Handle External Confirmation Requests
Accountants are sometimes asked to assist with or handle requests from a third party to provide confirmation or verification letters, also known as "comfort letters,". However, accountants should be careful to provide the appropriate context of the information in the confirmation balancing ethical standards and professional integrity. Below we provide structured advice on how to handle these requests effectively.
Understanding the Request for Confirmation
You may encounter requests from lenders (banks), government agencies, or other entities asking to verify, confirm, or substantiate a client’s financial details. These requests often involve:
Verification of self-employment or income.
Confirmation of business ownership and profitability.
Attestations related to employee wage rates or compliance with government regulations.
What Accountants Should Do
Provide Factual Information: Always aim to state facts clearly. For example, instead of asserting an employee's wage rate, provide information based on the company’s payroll reports, noting that this data has not been audited or verified by you.
Understand the difference between confirmation given based on a compilation or an assurance engagement. When requested for an attest report, options may include:
Auditing, reviewing, or compiling personal financial statements.
Examining or compiling prospective financial information.
Performing an agreed-upon procedures report (i.e. accounting officer’s report)
Obtain Client Consent: Ensure you have explicit written consent from the client before releasing any tax information or other confidential data, complying with legal requirements such as POPIA.
Educate Clients and Requesters: Often, once the costs and implications of providing requested assurances are explained, brokers and clients may reconsider their requests or settle for simpler, less formal responses.
What Accountants Should Not Do
Avoid Misleading Language: Do not use terms such as “assert”, “attest”, “certify”, or “verify” that imply assurance or certification work that you have not performed. This prevents misinterpretations that your response is equivalent to an audit or formal assurance. Using words when you have not performed the work required under attestation standards to make such assertions could mislead the requester.
Refrain from Providing Assurance on Solvency: Do not assure solvency-related matters Avoid making any comments regarding the client’s ability to pay debts as they mature or the sufficiency of capital for specific transactions.
Do Not Disclose Without Consent: Never release any confidential client information without obtaining the proper legal consent. This includes sharing tax return information or any financial details that are protected under privacy laws.
Resist Providing Unsubstantiated Information: Be wary of requests that require information or confirmation beyond the factual data you can verify. Resist the pressure to provide assurances where you have not performed adequate verification.
Conclusion
Providing third-party verification letters involves careful consideration of what you can and cannot do or say as an accountant. By adhering to these guidelines, you ensure that your professional conduct remains impeccable, safeguarding both your client's interests and your professional reputation. Always consult with professional bodies and standards organisations for detailed scenarios and further guidance.
