Lender Comments

[S T]

Okay, I have not had this occur for quite some time.

One of my business clients that I also process bookkeeping monthly is applying for $1.6 mil loan which will be a primary loan of approx $1 mil and a secondary loan of approx $600K.

I have worked with the primary lender for over 5 years, and they are fine, however, the secondary loan underwriters made a comment about the fact that I am not a CPA. I am an EA.

Will someone share how you would respond!

Thanks,

Sandy

[dsi]

Lower your pants, sit on the copier and print a copy. Then, write "kiss my" on the copy and send it to them.

[geekgirldany]

LOL I've had that happen to. Even had a lender want me to write on a letter that I am a CPA and that I prepared returns that I did not. After telling him no five times he took the letter I said I would write.

[Zee]

I'll try to help. As you're probably aware, CPA's issue three types of reports (1) Audits, (2) Reviews, (3) Compilations. In some states (FL), there is a fourth type called Assembled Statements.

Assembled or Compiled statements also may contain footnotes, but they are not always required. They offer no assurances.

Reviewed statements include limited testing of the financial records and limited assurance.

Audited Statements include extensive testing and an opinion.

Only CPA's can issue Reviewed or Audited Statements. They require much more time & testing of accounting records to complete and are significantly more expensive than a Compilation or Assembled Statement.

A compilation prepared by a CPA doesn't ensure higher quality. In most cases, there would be no difference.

Each level varies significantly in cost. CPA's are generally (but not always) more costly.

[BOB W]

I have glorified my letterhead with all the organizations I belong to as well as other capabilities.

Included are:

ACCREDITATIONS

“ENROLLED AGENT”
.... ADMITTED TO PRACTICE BEFORE THE
.... INTERNAL REVENUE SERVICE
.... AND ALL STATES AND THEIR AGENCIES

“ACCREDITED TAX ADVISOR”
....BY THE ACCREDITATION COUNCIL FOR
....ACCOUNTANCY AND TAXATION


AFFILIATIONS

NATIONAL SOCIETY OF ACCOUNTANTS
NEW YORK STATE SOCIETY OF
........INDEPENDENT ACCOUNTANTS
ACCREDITATION COUNCIL FOR
....... ACCOUNTANCY AND TAXATION
NATIONAL ASSOCIATION OF
........ENROLLED AGENTS
NEW YORK STATE SOCIETY OF
.......ENROLLED AGENTS
INSTITUTE FOR BUSINESS, FINANCIAL
........ AND ESTATE PLANNING


GENERAL SERVICES

BOOKKEEPING
PAYROLL
PAYROLL CHECK PROCESSING
INCOME TAXES
CORPORATE TAXES
AUDIT REPRESENTATION
FINANCIAL STATEMENTS

SPECIAL SERVICES

MANAGEMENT ADVISORY SERVICES
BUSINESS PROBLEM SOLVING
SMALL BUSINESS SERVICES DIVISION
COMPUTER ADVISORY SERVICES
ESTATE & GIFT TAX PLANNING

These are all in small letters going down the left side of my letterhead.

As like you, I have had the "Not a CPA" issue pop up now and then. When I issue my letterhead, without hesitation, the subject never comes up again.

[taxea]

I would call the lender's supervisor and ask for an apology in writing and for the idiot to contact my client to inform him of his error. taxea

[erchess]

EA vs CPA

For tax purposes I would put EA on a par with CPA. The two are equally likely to get the tax reporting correct.

For other accounting issues I would put EA on a par with unlicensed Accountant. For purposes of keeping your books or telling you whether they are correct, a CPA is a much better choice. The EA exam contains nothing about Accounting and the requirements to practice Accounting without being a CPA vary from State to State.

[Jiggers]

CPA's

I am an EA. I am a "Professional" tax preparer.

I do not want to be a CPA. I first started working for a CPA firm and worked for several years before getting my EA certificate.

I have encountered that "need a CPA" to do whatever.

Once a client was applying to enter his products at a convention. The application required a financial statement by a CPA. That caused a problem. The sponsors of the convention said that had to be complied with or he couldn't show his products (plants).

The second time was at our local bank. A client who I had done work for many years was trying to get his loan level increased. The bank had hired a new officer, and a CPA, who insisted that my client turn over all his work to a CPA and not a lowly EA. I complained to the bank, lost the client, and have no business dealings with the bank. The bank officer that required this was eventually fired.

[Zee]

For tax purposes I would put EA on a par with CPA. The two are equally likely to get the tax reporting correct.

For other accounting issues I would put EA on a par with unlicensed Accountant. For purposes of keeping your books or telling you whether they are correct, a CPA is a much better choice. The EA exam contains nothing about Accounting and the requirements to practice Accounting without being a CPA vary from State to State.

I agree. There are a lot reasons. Many states require a 5th year of college and a major in accounting (or a equivalent number of accounting classes)to become a CPA. CPA's are also subject to much stricter rules of reporting & standards in the preparation of financial statements, and often peer reviews. There is no regulation of others. As such, it's not unreasonable for a banker to request financial statements prepared by a CPA for a sizable loan, or reviewed or audited statements that only a CPA can prepare. It's possible the banker is only following bank policy.

I'll qualify this with the statement that just because a CPA prepared the financial statements doesn't make them better or more reliable. That depends on the preparer and the reader. Unless audited or reviewed, most financial statements prepared by both CPA's and others don't include notes. The notes are of critical importance to learn what's behind the numbers, but the reader has to be able to understand them.

It's possible the poster's financial statements are every bit as good as any CPA's. But, that's not a good reason to get upset at the banker. I'm also sure that there are some tax preparers who are not Enrolled Agents or CPA's that are just as good.

We're all a little too "sensitive" about titles, educational credentials, etc.

[JohnH]

I'm not sensitive about titles, credentials, etc, but I do take exception to bankers, who often have virtually no knowledge about anything financial beyond the checklists they are handed by management, making statements about the qualifications of anyone their customers are dealing with. Their ignorant and uniformed musings can potentially interfere with long-standing relationships. These clerks with fancy titles need to stick to ticking off items on their little checklists and leaving the real financial work to those who know what they are doing.

[Bees Knees]

When a bank loan goes bad, the lender often goes after the accountant for failing to disclose the situation that caused the loan default on the financial statements.

If the underwriter does not think an EA is qualified to do accounting and prefers a CPA prepared set of financial statements, that’s fine with me. Let the bank tell the client to get a CPA to sign off on the income statement and balance sheet. I only do financial statements for purposes of preparing the tax return. I will not sign an income statement or balance sheet for a bank loan.

[Zee]

When a bank loan goes bad, the lender often goes after the accountant for failing to disclose the situation that caused the loan default on the financial statements.

If the underwriter does not think an EA is qualified to do accounting and prefers a CPA prepared set of financial statements, that’s fine with me. Let the bank tell the client to get a CPA to sign off on the income statement and balance sheet. I only do financial statements for purposes of preparing the tax return. I will not sign an income statement or balance sheet for a bank loan.

In most states, a licensed CPA must issue a cover letter with any set of financial statements. It's the opinion that counts. Only fully audited statements express an opinion...that's the equivalent of a sign-off and does put the CPA at risk. The cover letter for reviews offer limited assurances, and compilations or assembled statements almost none. There is a standard language for each that must be followed.

I'm not sure what you mean when you indicate you won't sign an income statement or balance sheet used for a bank loan? But, I suppose it means you won't indicate you prepared the statement (or won't prepare them)? The risk is that the client can use a set of financial statements prepared for internal use for a bank loan anyway. In those states allowing "assembled" or "plain paper" returns, a CPA must stamp or note each page with a phrase "Management Use Only" to avoid this. Others aren't required, but it'd probably be a good practice. To my knowledge, only a CPA can offer an opinion on the fairness & accuracy of a set of financial statements, but anyone can issue a letter indicating they've prepared them.

I believe whoever prepares financial statements submitted to a bank could be subject to a lawsuit if the statements are materially in error, or misleading.

[Corduroy Frog]

CPAs are different

Guys, the entire body of work of which we speak is entirely different than what we do as EAs.

The attest function tailored for CPAs is an area we should not claim as expertise. Even the auditing procedures and the nature of work is totally different for the attest function and tax auditing. Auditors look for entirely different things, and in different ways.

Banks have requirements. In my small town, all the local banks know of my work and accept tax returns with loan applications, etc. But we've got a couple nationwide banks where the loan is approved in some big Yankee town, and they require the signature of a CPA when appropriate.

Most CPAs in small towns do tax work and can claim expertise. However, many CPAs who remain in audit work and other financial applications do not have the tax expertise of an EA either. Much of CPA and EA work is the same, but much is different.

It's natural to be insulted when a bank requires a CPA, and we practice taxes, payroll, etc. If we want to go there, the prescription is simple: Pass the test, go through apprenticeship at minimum wage for a few years, hang out your shingle and go for it.
(None of the above are easy.) Do what CPAs do, and then become one.

[Bees Knees]

I'm not sure what you mean when you indicate you won't sign an income statement or balance sheet used for a bank loan? But, I suppose it means you won't indicate you prepared the statement (or won't prepare them)? The risk is that the client can use a set of financial statements prepared for internal use for a bank loan anyway. In those states allowing "assembled" or "plain paper" returns, a CPA must stamp or note each page with a phrase "Management Use Only" to avoid this. Others aren't required, but it'd probably be a good practice. To my knowledge, only a CPA can offer an opinion on the fairness & accuracy of a set of financial statements, but anyone can issue a letter indicating they've prepared them.

I believe whoever prepares financial statements submitted to a bank could be subject to a lawsuit if the statements are materially in error, or misleading.

A set of financial statements attached to a tax return are not considered financial statements under generally accepted accounting principal rules and thus require no cover letter. They are considered work papers solely for the purpose of preparing a tax return.

The minute you separately issue a compiled set of financial statements to a client with or without a cover letter, the information can and is used by third parties who will name you in a lawsuit.

What gets an accountant sued is doing something outside what the industry considers to be the accepted practice.

That is what I mean by signing a set of financial statements. I will not issue them separate with or without a letter other than as an attachment to the tax return itself.

[Zee]

A set of financial statements attached to a tax return are not considered financial statements under generally accepted accounting principal rules and thus require no cover letter. They are considered work papers solely for the purpose of preparing a tax return.

Bees-

I don't mean to be stubborn and we've drifted quite a ways from the original question. However, this kind of discussion helps me remember how much I've forgotten. I don't believe that's correct.

First, SSARS #8 & SSARS #1 determines whether or not a CPA must include a report (cover letter), not GAAP. If a CPA has "prepared" and "submitted financial statements" to his client or a third party, a report must be issued.

In your example, the CPA has prepared the financial statements and attached them to the tax return. If the attached financial statements were presented to the client or a third party with the tax return, submission has occurred and a report must be issued. If the financial statements are simply used as workpapers and not delivered with the tax return, there has been no submission and a report isn't necessary.

Information on a tax return is exempt from SSARS #1 & 8. It's the attachment of a separate financial statement that's bothersome.

An enrolled agent or others are not subject to these rules.

There is a clear example of this in a Compilation and Review CPE course I have taken, and I'll be completing another in a week or so, but there have been no changes to this situation to my knowledge.