A CPA comfort letter is a document that a Certified Public Accountant (CPA) may provide to a third party, such as a mortgage lender, investor, or attorney. While often requested, there are strict requirements regarding who can issue one, what it can contain, and how it can be used. The primary requirement is that the issuer must be a licensed CPA. Beyond the license, specific client authorization and clear scope limitations are necessary.
A CPA comfort letter is a written communication issued by a licensed CPA to a specific third party, based on the CPA’s familiarity with a client’s financial records. However, the letter provides limited, factual information and is not a substitute for an audit or formal opinion . The issuer must have client authorization and the letter is always restricted to its stated purpose . It is not a guarantee of loan approval or financial health.
Who Can Issue a CPA Comfort Letter?
These are following issue appear in the CPA Comfort Letter:
What are the qualifications to issue a CPA comfort letter?
A CPA comfort letter must be issued by a Certified Public Accountant who holds an active license to practice. This ensures the issuer is subject to professional standards and regulations. The qualifications of the CPA are essential to the document's credibility for lenders and other third parties.
Does a CPA's license state matter?
Yes. Typically, a CPA is licensed and regulated by the state in which they practice. While national standards from the AICPA apply, the specific laws and regulations governing a CPA's practice are state-based. The CPA issuing the letter should be licensed to practice in the U.S. and should be familiar with the professional standards relevant to the specific request.
Can a non-CPA accountant issue a comfort letter?
No. The term "CPA" and its associated designations are legally protected. A comfort letter requires the credential and authority of a licensed CPA. An accountant who is not a licensed CPA generally cannot issue a document bearing the CPA designation or that carries the same professional weight with lenders and other official entities.
What Is Required From the Client?
CAP must require these following thing:
Does the client need to authorize the letter?
Yes. A CPA cannot issue a comfort letter without proper authorization from the client. This is a core professional and ethical requirement . The authorization must clearly define who may receive the letter, its specific purpose, and any restrictions on its use. This is to comply with confidentiality rules like the AICPA’s Confidential Client Information Rule .
What information and documents does the client need to provide?
To issue the letter, the CPA relies on financial records provided by the client. The CPA may request documents such as tax returns, profit and loss statements, and bank statements. However, it is important to understand that the CPA is typically confirming facts based on information the client has provided, rather than performing independent verification or an audit of that information .
What Is the Scope of a CPA Comfort Letter?
What can a CPA confirm in a comfort letter?
A CPA can provide limited, factual information within the scope of their professional familiarity with the client. This often includes:
- The client's business is active and in good standing with the state .
- The client's ownership percentage in a business .
- The length of the client's self-employment or business ownership .
- The business expense ratio .
The letter is typically written using "negative assurance" language. This means the CPA states that nothing has come to their attention to indicate the information is incorrect. This is a lower level of assurance than "positive assurance," which would be provided only if the financial statements were audited .
What can a CPA generally not certify?
A CPA generally cannot provide an opinion on matters that would require an audit or attestation engagement. Specifically, a comfort letter is not designed to:
- Verify income or assets for a loan .
- Approve a mortgage qualification .
- Guarantee the future performance, profitability, or business stability of the company .
- Confirm the absolute accuracy of tax returns .
The letter explicitly states that no independent verification or validation was performed. This protects both the CPA and the requesting party from misinterpretation .
How Is a CPA Comfort Letter Different from a Verification or Audit?
What is the difference between a comfort letter and an audit?
The differences are substantial. An audit is a comprehensive, independent examination of financial statements, performed using strict auditing standards. An audit results in a formal opinion on the financial statements, which provides a high level of "positive assurance." In contrast, a CPA comfort letter is a limited-scope, non-attest document. It provides "negative assurance" based on the CPA's existing familiarity with the client, and it explicitly disclaims any opinion on the financial statements as a whole .
Why might a lender request a comfort letter instead of an audit?
A full audit is expensive and time-consuming. For many purposes, such as a mortgage application, a lender needs specific, limited information about a self-employed borrower's business activity. A CPA letter is a more practical and cost-effective solution for the borrower to provide that professional context, even if it is not a formal verification .
Where Can You Get a CPA Comfort Letter?
A qualified CPA can issue a comfort letter. This can be your existing accountant or a CPA you hire specifically for this service. It is critical to ensure the CPA is licensed and based in the United States, as many lenders will reject letters from overseas or unverified sources . Before requesting one, confirm with the lender what specific details the letter must contain to meet their underwriting requirements.
How Long Does the Process Take?
The timeframe can vary depending on the CPA's workload, the complexity of the information requested, and the speed of the client providing the required documentation. It is essential to start the process well in advance of any deadline. Some services offer expedited turnaround, but a standard timeline is often a few days to a week. To avoid delays, ensure you have all necessary documents ready and a clear understanding of what the requesting party needs .
FAQs
Who is authorized to issue a CPA comfort letter?
Only a Certified Public Accountant (CPA) with an active U.S. license is authorized to issue a CPA comfort letter.
What is the purpose of a CPA comfort letter?
The purpose is to provide a third party, like a lender, with limited, professional context about a client's financial standing based on the CPA's familiarity with their records.
What is the difference between a comfort letter and a verification letter?
While often used interchangeably, a "verification letter" is a broader term. A CPA comfort letter implies a specific, limited-scope professional communication that often involves negative assurance. The exact scope is defined by the request.
Does a CPA comfort letter guarantee my mortgage will be approved?
No. A CPA comfort letter does not guarantee mortgage approval. The lender will still make the final underwriting decision. The letter only provides information to assist in their process .
How much does a CPA comfort letter cost?
The cost varies depending on the CPA firm, the complexity of the letter, and the urgency of the request. It is best to contact a CPA directly for a quote.
What documents do I need to get a CPA comfort letter?
You will typically need to provide financial documents such as tax returns, bank statements, and profit-and-loss statements, depending on what the lender requires. The CPA uses these documents to draft the letter .
Can I use one CPA comfort letter for multiple lenders?
Generally, no. A comfort letter is typically addressed to a specific recipient and for a specific purpose. Lenders often require the letter to be addressed directly to them .
What is "negative assurance" in a comfort letter?
"Negative assurance" is a statement from the CPA that nothing has come to their attention to indicate that the information is incorrect. It is not a guarantee of accuracy .
