North Carolina CPAs and Comfort Letters - Activity Review No. 02-2012

Sep 15, 2026

The activity review examines the challenge faced by North Carolina CPAs when clients, lenders, and other third parties request “comfort letters” or solvency opinions. It explains why comfort letters are sought, especially in stated-income mortgage situations, and analyzes risks for CPAs when issuing letters not specifically engaged for those purposes. It outlines relevant attestation standards, highlights what cannot be assured under the rules, and presents practical alternatives to reduce liability.

LanguageEnglish

CategoryLetters

FormatPDF

Pages2

Reading Time1 min

AccessFree to download

The Challenge of Providing “Comfort Letters” for Clients

Reasons Clients Request Comfort Letters

Common Letter Requests and CPA Liability Risks

Attestation Standards: What Is Permitted and Prohibited

Alternative Approaches and Risk Management

ActivityReview North Carolina State Board of Certified Public Accountant Examiners 1101 Oberlin Rd., Ste. 104 • PO Box 12827 • Raleigh, NC 27605 • 919-733-4222 • [www.nccpaboard.gov](www.nccpaboard.gov) • No. 02-2012 The Challenge of Providing “Comfort Letters” for Clients North Carolina CPAs continue to face the challenge of how to respond to requests from clients, lenders, and other third parties for“comfort letters”or“solvency opinions.” There are various reasons a client may request a comfort letter--a mortgage broker maybe collecting information needed for a loan approval or a third party maybe trying to verify that clients applying for a particular service are have the resources and ability to pay for the service or items involved. In some cases, a foreign government may request financial information for adoption proceedings. Usually, the letter at issue is associated with stated-income loans, which are mortgages that do not require borrowers todocument their income. Such loans often are sought by self-employed people and individuals with investment income or with sales jobs of varying commissions. Lenders, lacking documentation to support borrower’s income claims, take on the risk that borrower’s claims are inad- equate. To gain more comfort in extending loans, some lenders look to the borrower’s CPA for assurance or comfort about certain information. Most lenders will simply ask the CPA to write a letter indicating that the prospective borrower is self-employed or is employed in a certain profession. Others may attempt to shift the burden of responsibility for due diligence onto the borrower’s CPA and provide a script of what they want the letter to say. Such a letter provides thirdparty verification of details in the application and could transfer some of the potential liability to the CPA in the event of default on the loan. There are a few issues with this type of letter that should concern CPAs. First, the proposed letter asks the CPA to attest, when the CPA has not specifically been engaged for that purpose. The report would be issued toa third party that has not contracted with the preparer for that specific purpose. According to Auditing Stan- dards Board Statement on Standards for Attestation EngagementsNo. 10, Attest Engagements, an attestation engagement is called for if the client wants a written report providing assurance about a specific subject. Of course, performing an attestation engagement isnot prohibited in the case of a lender’s comfort letter request, but CPAs must follow the procedures required in an attestation engagement. The client will likely not want to incur the expense of a formal attestation engagement. It is also important to know what is not permitted under the standards. AT Section 9101, Attest Engagements: Attest Engagements Interpretations of Section 101, No. 2, ¶ 25 states that practitioners should not provide any form of assurance that an entity is not insolvent or would not be rendered insolvent upon a proposed condition, or that an entity has the ability to pay debts as they mature. A lender may want the CPAto make an assurance that the applicant’s withdrawal of the funds for a down payment or other purposes would not put a financial strain on the applicant’s self-employment business. Any representation to that effect could be construed to be a comment on solvency and would thus be prohibited under the standards. The types of services permitted ina CPA attest report include an audit, a review, or a compilation of the applicant’s personal financial statements. The CPA may also report on proforma financial information or perform an agreed-upon procedures report, as long as those procedures do not provide any assurance on matters of solvency. The important thing to consider is that this type of engagement requires many procedural steps, which take time and result in significant fees to the client. If the CPA takes the time to explain to the len

FAQs

Why do clients or lenders request comfort letters from North Carolina CPAs?

Comfort letters are requested to verify information for loan approvals or other third-party needs, including stated-income lending where borrowers do not document income conventionally.

What is the key CPA risk when a comfort letter is requested without a matching engagement purpose?

The CPA may be asked to attest without being specifically engaged for that purpose, and the resulting report goes to a third party that contracted for neither the specific engagement nor the attestation.

What assurance about insolvency or ability to pay is prohibited under the standards?

Practitioners should not provide any form of assurance that an entity is not insolvent (or would not be rendered insolvent) under a proposed condition, nor assurance that an entity has the ability to pay debts as they mature.

Sep 15, 2026

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