With the current economic landscape of inflationary pressures and interest rate rises you may well be considering going through the process of a new loan application, whether that be through refinancing or a new loan altogether.
Unfortunately, the financing process will likely require you to jump through a few more hoops than you will be expecting.
One of these could be that your bank or finance broker may ask you to provide an “Accountant’s Letter” to support your application. This may seem like a simple request but in reality, it can be a lot more complicated given the limitations on what accountants can and can’t include in one of these letters.
What is an Accountant’s Letter?
An accountant’s letter is a letter that is signed by a qualified accountant to confirm the information that is being provided to an external party (such as financiers or banks) is true and correct.
Generally speaking, if you are purely a salary and wage earner you can provide items such as pay slips, group certificates, and tax returns which are unlikely to be able to be manipulated and don’t require as much input from an accountant’s perspective.
However, if you are running a business (whether this is as a sole trader, trust, or company) and you are providing financial information, this information can leave a little bit more to interpretation which is where accountants are asked to be a little more involved.
What are the difficulties associated with an Accountant’s Letter?
Accountants can start to run into a little bit of trouble when we are asked to sign off on future events or give predictions. If we had a crystal ball life would be a lot simpler but unfortunately, this is not the case. As a result, if we attempt to predict the future and those predictions don’t eventuate leading to an issue with your ability to manage your obligations, the liability sits with us given the information the bank relied upon to approve the finance.
Some common examples of things we are asked to sign off on include:
- Confirmation that your income will be sufficient to pay your debts;
- Confirmation that you are trading profitably at the moment and will continue to do so;
- Confirmation that your future trading will be similar to past trading;
- Confirmation on how loan monies will be used; or
- Confirmation that we are not aware of factors that may affect the borrower/s ability to make repayments under this loan or which may cause substantial hardship to the borrower/s.
Whilst we will always endeavour to assist and support our clients, we are not licenced to sign or approve any documents that essentially shift the risk of the credit assessment from the lender to the accountant.
To provide a certificate or assessment regarding your ability to meet your financial obligations, an advisor must hold an Australian Credit Licence (ACL) or be a credit representative of an ACL. Many accountants and more recently financial advisors do not hold such a licence, and hence where the limitations lie.
How can we help with your Accountant’s Letter?
Our governing accounting bodies have made it quite clear that we can provide “factual information” that is based on known & quantifiable data. This can be as simple as:
- Referring to the status of tax return lodgement or the details included in the tax return;
- Confirming financial statements provided are accurate; and
- Providing cashflow forecasts with commentary around assumptions used to build the data.
Subject to the level of information provided, the letter may be a simple process to confirm facts or grow into a larger body of work if it requires additional reports to be prepared and/or analysed.
Some common examples of things we can include in an accountant’s letter are:
- Confirmation that your tax return has been lodged;
- Confirmation that your tax return has been prepared and is awaiting lodgement;
- Confirmation of current ATO debts on accounts and whether the debts are under a current payment arrangement;
- Confirm that your income last year was $XXX or that your YTD income per actual activity is $XXX;
- Details on a business structure and how it operates; and
- Confirmation that a particular entity is not trading and has no liabilities.
We are more than happy to work with your financier or bank to come up with a solution that will work for you that does not compromise our licencing limitations.
What should you do if you need an Accountant’s Letter?
Experience has taught us that the best solutions come from a good working relationship between you, us and your broker/financier.
Importantly, we ask you to not accept your broker/financier comments regarding what your accountant can sign or approve as part of your application. Ask us what we can do instead.
We recommend that you make contact with us early in the process so that we can confirm what we can provide, and also give you the opportunity to explore your options should you be dealing with a lender.
Understand that whilst a bank will always try to shift their risks, they are in the business of banking and if they are not working with you to find a suitable solution, you have options to explore other lenders.
So the key to a good outcome – talk to us and help us guide you through the process. If you would like to get in touch regarding your accountant’s letter, contact our offices on 03 5221 6399 or at email@example.com.
This article was written by Manager Daniel Neeson.
Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.