Introduction: Occasionally, business owners might receive a request from a bank for their accountant to sign a comfort letter. While this might seem like a simple task, it involves significant legal and ethical considerations. In this blog post, we’ll explore why it’s not recommended for your accountant to sign a comfort letter and how this decision protects both your business and your accountant. Insights from our recent video with Jon Markee, your Builder CPA, will help you understand the importance of this practice.
Protecting Legal Interests: By not signing a comfort letter, your accountant helps safeguard your legal interests. CPAs adhere to strict legal and ethical guidelines, and involving them in potentially risky assurances could expose both parties to legal complications. If a legal issue arises from the comfort letter, it could lead to significant time loss and financial burdens for everyone involved. Additionally, your accountant might not have the appropriate liability insurance to cover such cases, further increasing the risk.
Maintaining Objectivity: Your accountant’s primary role is to provide accurate and objective financial advice. Signing a comfort letter could compromise their independence, potentially influencing their ability to deliver unbiased insights. By refraining from signing these letters, accountants ensure they remain impartial and focused on supporting your business’s success with high-quality financial advice.
Avoiding Conflicts of Interest: When accountants refrain from signing comfort letters, they avoid conflicts of interest that could arise from supporting your position while adhering to professional standards. For example, if your accountant signs a comfort letter and your business later experiences financial difficulties, they might feel pressured to conceal negative information to protect their initial assurance. This scenario could prevent you from receiving accurate financial data needed for timely decision-making.
Preserving Professional Trust: Encouraging your accountant to uphold ethical practices by not signing comfort letters helps maintain their professional reputation. A tarnished reputation could call into question all historical financials they’ve prepared for you. Trustworthiness and integrity are vital for a productive accountant-client relationship, reflecting positively on your business and ensuring you can rely on your accountant’s expertise.
Conclusion: While signing a comfort letter might seem like a straightforward request, it involves significant risks and ethical concerns. Protecting your legal interests, maintaining objectivity, avoiding conflicts of interest, and preserving professional trust are essential reasons why accountants should refrain from signing comfort letters. For more insights, watch our latest video where Jon Markee, your Builder CPA, discusses these points in detail.
Understanding these guidelines is crucial for maintaining the integrity of your financial reporting and ensuring long-term business success.