SAMPLE LETTER #1
Sample Letter to Client Responding to Request by Bank Before Completion of Audit for CPA's Acknowledgment of Bank's Intent to Rely on CPA's Audit for a Specified Agreement
XYZ Company (Client)
425 Eagle Rock Road
Roseland, NJ 07068-1723
Dear _____:
Our firm has been engaged to perform an audit of the financial statements of XYZ Company as of and for the year ending December 31, 19XX. You have advised us that XYZ Company plans to provide ABC Bank with a copy of the 19XX financial statements accompanied by our auditors' report thereon in connection with a Credit Agreement dated (date) between XYZ Company and ABC Bank and credit decisions under such Credit Agreement subsequent to the date of our report; and, that ABC Bank has informed you that it intends to rely in part on the audited financial statements as part of its consideration of the Credit Agreement and credit decision thereunder.
Our audit will be conducted in accordance with generally accepted auditing standards, the objective of which is to form an opinion as to whether the financial statements, which are the responsibility and representation of management of XYZ Company, present fairly, in all material respects, the XYZ Company's financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Under those standards, we have the responsibility, within the inherent limitations of the auditing process, to design our audit to provide reasonable assurance that the financial statements will be free of material misstatement. The concept of selective testing of the data being audited, which involves judgment both as to the number of transactions to be audited and as to the areas to be tested, has been generally accepted as a valid and sufficient basis for an auditor to express an opinion on financial statements. Thus, our audit, based on the concept of selective testing, is subject to the inherent risks that material misstatements, if they exist, will not be detected. In addition, our audit will not address future events or the possibility that material misstatements may occur in the future. Nothing in this letter is intended to alter the scope of our audit beyond that contemplated by an audit in accordance with generally accepted auditing standards.
In conducting our audit and reporting the results thereof, materiality will be evaluated and determined in the context of the financial statements taken as a whole. Accordingly, our use of professional judgment and assessment of materiality for the purpose of our work means that matters may exist that would be differently assessed by others, including ABC Bank.
Our audit of XYZ Company's 19XX financial statements will be made for the objective stated above and, therefore, items of possible interest to ABC Bank may not be specifically addressed. Accordingly, our audit will not be planned nor conducted for the benefit of ABC Bank and should not be taken to supplant the inquiries and procedures that ABC Bank should undertake for the purpose of satisfying itself in connection with the Credit Agreement with XYZ Company.
Our opinion and this letter should never be mistaken as authorization or approval for a credit decision. A lender's credit decision should be based not only on the borrower's financial statements, but also on the lender's exercise of reasonable due diligence with respect to many other factors and information received, some of which are internal and some of which are external to the borrower, and a lender needs to monitor those factors on an on-going basis. We wish to emphasize, therefore, that ABC Bank would be remiss in placing its reliance solely upon our report in making credit decisions with respect to the Credit Agreement and it is our understanding that ABC Bank is not relying only on the financial statements audited by our firm in connection with the Credit Agreement.
Further, the issuance of this letter is not an acknowledgment that ABC Bank will, in fact, rely (or, if so to what extent) on the financial statements and our auditors' report thereon, or that any particular use of our auditors' report and the financial statements to which it relates is reasonable or appropriate. Any use by ABC Bank of XYZ Company's financial statements or our auditors' report is solely a matter of its responsibility and judgment.
It is management's responsibility to adopt sound accounting policies, and establish and maintain internal controls that will, among other things, provide reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and properly recorded, processed, and summarized to permit the preparation of financial statements in conformity with generally accepted accounting principles. We will not perform procedures with respect to those financial statements subsequent to the date of our report and thus no assurance can be given that other possibly significant matters will not arise thereafter.
This letter is issued in connection with our report on the financial statements of XYZ Company for the year ending December 31, 19XX and does not extend to, nor shall it survive, any subsequent audited financial statements issued and does not extend to other reports or professional services, if any, which might be rendered in connection with our engagements by the Company. This letter is not intended to establish a client relationship between our firm and ABC Bank as it relates to XYZ Company.
By providing you with this letter and a copy of it to ABC Bank, we are explicitly limiting our liability so as to exclude all parties other than you and ABC Bank pursuant to the New Jersey Accountancy Law, Title 2A of the New Jersey Statutes Section 53A-25.
Sincerely,
CERTIFIED PUBLIC ACCOUNTANTS
cc: ABC Bank
SAMPLE LETTER #2
Sample Letter to Client Responding to Request by Bank, After Issuance of Audit Report, for CPA's Acknowledgment of Bank's Intent to Rely on CPA's Audit Report
XYZ Company (Client)
425 Eagle Rock Road
Roseland, NJ 07068-1723
Dear _____:
Our firm has audited the financial statements of XYZ Company (the "Company") as of and for the year ended December 31, 19XX. You have advised us that the Company has provided the ABC Bank with a copy of those financial statements accompanied by our auditors' report thereon in connection with [describe proposed transaction as specifically as possible] between the Company and ABC Bank and credit decisions under such [proposed transaction] subsequent to the date of our report; and that ABC Bank has informed you that it intends to rely in part on the audited financial statements as part of its consideration of the [describe transaction]. Such report was rendered to the Company primarily for its own use. We wish to point out that at the time we performed our audit, we were not aware that the ABC Bank would be furnished a copy of the Company's audited financial statements.
Our audit was conducted in accordance with generally accepted auditing standards, the objective of which is to form an opinion as to whether the financial statements, which are the responsibility and representation of management of the Company, present fairly, in all material respects, the Company's financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Under those standards, we had the responsibility, within the inherent limitations of the auditing process, to design the audit to provide reasonable assurance that the financial statements are free of material misstatement. The concept of selective testing of the data being audited, which involves judgment both as to the number of transactions to be audited and as to the areas to be tested, has been generally accepted as a valid and sufficient basis for an auditor to express an opinion on financial statements. Thus, our audit, based on the concept of selective testing, was subject to the inherent risks that material misstatements, if they did exist, would not be detected. In addition, our audit did not address future events or the possibility that material misstatements may occur in the future. Nothing in this letter is intended to alter the scope of our audit beyond that contemplated by an audit in accordance with generally accepted auditing standards.
In the conduct of our audit and reporting the results thereof, materiality was evaluated and determined in the context of the financial statements taken as a whole. Accordingly, our use of professional judgment and the assessment of materiality for the purpose of our work means that matters may have existed that would have been differently assessed by others, including ABC Bank.
Our audit of the Company's 19XX financial statements was made for the objective stated above, and was not planned or conducted in contemplation of the [describe proposed transaction as specifically as possible]. Therefore, items of possible interest to the Bank may not have been specifically addressed. Accordingly, our audit was not planned or conducted for the benefit of ABC Bank and should not be taken to supplant the inquiries and procedures that ABC Bank should undertake for the purpose of satisfying itself in connection with the (agreement) with the Company.
Our opinion and this letter should never be mistaken as authorization or approval for a credit decision. A lender's credit decision should be based not only on the borrower's financial statements, but also on the lender's exercise of reasonable due diligence with respect to many other factors and information received, some of which are internal and some of which are external to the borrower, and a lender needs to monitor those factors on an ongoing basis. We wish to emphasize, therefore, that ABC Bank would be remiss in placing its reliance solely upon our report in making credit decisions with respect to the [proposed transaction] and it is our understanding that ABC Bank is not relying only on the financial statements audited by our firm in connection with the [proposed transaction].
Further, the issuance of this letter is not an acknowledgment that ABC Bank will, in fact, rely (or, if so to what extent) on the financial statements and our auditors' report thereon, or that any particular use of our auditors' report and the financial statements to which it relates is reasonable or appropriate. Any use by ABC Bank of the Company's financial statements or our auditors' report is solely a matter of its responsibility and judgment.
It is management's responsibility to adopt sound accounting policies, and establish and maintain internal controls that will, among other things, provide reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and properly recorded, processed and summarized to permit the preparation of financial statements in conformity with generally accepted accounting principles. We have performed no auditing procedures with respect to those financial statements subsequent to the date of our report and thus no assurance can be given that other possibly significant matters have not or will not arise thereafter.
(NOTE: A member should exercise a high degree of caution before acknowledging privity when the requested report relates to financial statements that the CPA believes are "stale"; however, should a member be so inclined to acknowledge, the following paragraph should be added): It should be noted that the financial statements to which our report relates are now (e.g., 12 months old). ABC Bank, in performing its due diligence, in addition to obtaining whatever other information may be necessary for its purposes, should consider the need to obtain more current financial statements of the Company.
This letter is issued in connection with our report on the financial statements of the Company for the year ended December 31, 19XX and does not extend to nor shall it survive, any subsequent audited financial statements issued, and does not extend to other reports or professional services, if any, that might be rendered in connection with our engagements by the Company. This letter is not intended to establish a client relationship between our firm and ABC Bank as it relates to the Company.
By providing you with this letter and a copy of it to ABC Bank, we are explicitly limiting our liability so as to exclude all parties other than you and ABC Bank pursuant to the New Jersey Accountancy Law, Title 2A of the New Jersey Statutes Section 53A-25.
Sincerely,
CERTIFIED PUBLIC ACCOUNTANTS
cc: ABC Bank
SAMPLE LETTER #3
Sample Letter to Client Responding to Request by Bank for CPA's Acknowledgment of Bank's Intent to Rely on CPA's Review for a Non-Public Company (Including Suggested Language for a Post-Issuance Request)
XYZ Company (Client)
425 Eagle Rock Road
Roseland, NJ 07068-1723
Dear _____:
Our firm has been engaged to review the financial statements of XYZ Company as of and for the year ending December 31, 19XX. You have advised us that XYZ Company plans to provide ABC Bank with a copy of the 19XX financial statements accompanied by our accountants' report thereon in connection with a Credit Agreement dated (date) between XYZ Company and ABC Bank and credit decisions under such Credit Agreement subsequent to the date of our report; and that ABC Bank has informed you that it intends to rely in part on the reviewed financial statements as part of its consideration of the Credit Agreement and credit decisions thereunder.
Our review of the XYZ Company's 19XX financial statements will be conducted in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants, the objective of which is to provide us, through the performance of inquiry and analytical procedures, with a reasonable basis for expressing limited assurance that there are no material modifications that should be made to the financial statements (which are the responsibility and representations of the management of XYZ Company), in order for those statements to be in conformity with generally accepted accounting principles. A review consists principally of inquiries of XYZ Company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we will not express such an opinion.
Our review of the XYZ Company's 19XX financial statements will be made for the objective stated above. Therefore, it is likely that items of possible interest to the Bank will not be specifically addressed. Accordingly, our review will not be conducted for the benefit of ABC Bank and should not be taken to supplant the inquiries and procedures that ABC Bank should undertake for the purpose of satisfying itself in connection with the Credit Agreement with XYZ Company.
Our review report and this letter should never be mistaken as authorization or approval for a credit decision. A lender's credit decision should be based not only on the borrower's financial statements, but also on the lender's exercise of reasonable due diligence with respect to many other factors and information received, some of which are internal and some of which are external to the borrower, and a lender needs to monitor those factors on an on-going basis. We wish to emphasize, therefore, that ABC Bank would be remiss in placing its reliance solely upon our report in making credit decisions with respect to the Credit Agreement and it is our understanding that ABC Bank is not relying only on the financial statements reviewed by our firm in connection with the Credit Agreement.
Further, the issuance of this letter is not an acknowledgment that ABC Bank will, in fact, rely (or, if so to what extent) on the financial statements and our accountants' report thereon, or that any particular use of our accountants' report and the financial statements to which it relates is reasonable or appropriate. Any use by ABC Bank of XYZ Company's financial statements or our accountants' report is solely a matter of its responsibility and judgment.
(NOTE/OPTIONAL: The CPA may wish to include the following paragraph advising management of its internal management responsibilities): It is management's responsibility to adopt sound accounting policies, and establish and maintain internal controls that will, among other things, provide reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and properly recorded, processed and summarized to permit the preparation of financial statements in conformity with generally accepted accounting principles.
We will not perform procedures with respect to the financial statements subsequent to the date of our report and thus no assurance can be given that possibly significant matters will not arise thereafter.
(NOTE: If the letter is to be issued subsequent to the date of the CPA's review report, add the following paragraph and delete the above paragraph. In addition, the verbs in the opening paragraphs will need to be changed to the past tense): Our report on the XYZ Company's 19XX financial statements, dated _______, 19__, indicated that we were not aware, as of the date of that review, of any material modifications that should be made to those statements in order for them to be in conformity with generally accepted accounting principles. We have performed no procedures with respect to those financial statements subsequent to that date nor have we reviewed any financial statements of the Company subsequent to December 31, 19XX and thus no assurance can be given that possibly significant matters did not arise thereafter.
(NOTE: A member should exercise a high degree of caution before acknowledging privity when the requested report relates to financial statements that the CPA believes are "stale"; however, should a member be inclined to so acknowledge, the following paragraph should be added): It should be noted that the financial statements to which our review report relates are now (e.g., 12 months old). ABC Bank, in exercising its due diligence in addition to obtaining whatever other information may be necessary for its purposes, should consider the need to obtain more current financial statements of XYZ Company.
This letter is issued in connection with our review report on the XYZ Company's 19XX financial statements and does not extend to, nor shall it survive, any subsequent financial statements issued, which are accompanied by an accountants' report, and does not extend to other reports or professional services, if any, which might be rendered in connection with our engagements by the Company. This letter is not intended to establish a client relationship between our firm and ABC Bank as it relates to the XYZ Company.
By providing you with this letter and a copy of it to ABC Bank, we are explicitly limiting our liability so as to exclude all parties other than you and ABC Bank pursuant to the New Jersey Accountancy Law, Title 2A of the New Jersey Statutes Section 53A-25.
Sincerely,
CERTIFIED PUBLIC ACCOUNTANTS
cc: ABC Bank
SAMPLE LETTER #4
Sample Letter to Client Responding to Request by Bank for CPA's Acknowledgment of Bank's Intent to Rely on CPA's Compilation for a Non-Public Company (Including Suggested Language for Post-Issuance Request)
XYZ Company (Client)
425 Eagle Rock Road
Roseland, NJ 07068-1723
Dear _____:
Our firm has been engaged to issue a compilation report on the financial statements of XYZ Company as of and for the year ending December 31, 19XX. You have advised us that XYZ Company plans to provide ABC Bank with a copy of the 19XX financial statements accompanied by our accountants' report thereon in connection with a Credit Agreement dated (date) between XYZ Company and ABC Bank and credit decisions under such Credit Agreement subsequent to the date of our report; and that ABC Bank has informed you that it intends to rely in part on the compiled financial statements as part of its consideration of the Credit Agreement and credit decisions thereunder.
Our compilation services on XYZ Company's 19XX financial statements will be conducted in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. A compilation is limited to presenting in the form of financial statements, information that is the representation of management. We will not audit or review XYZ Company's 19XX financial statements and, accordingly, will not express an opinion or any other form of assurance on them. Consequently, ABC Bank's intended reliance is subject to the inherently limited nature of such compilation reports.
Our compilation report on the Company's 19XX financial statements will be issued for the objective stated above. Therefore, it is likely that items of possible interest to the Bank will not be specifically addressed. Accordingly, our compilation services will not be conducted for the benefit of ABC Bank and should not be taken to supplant the inquiries and procedures that ABC Bank should undertake for the purpose of satisfying itself in connection with the Credit Agreement with XYZ Company.
Our compilation report and this letter should never be mistaken as authorization or approval for a credit decision. A lender's credit decision should be based not only on the borrower's financial statements, but also on the lender's exercise of reasonable due diligence with respect to many other factors and information received, some of which are internal and some of which are external to the borrower, and a lender needs to monitor those factors on an on-going basis. We wish to emphasize, therefore, that ABC Bank would be remiss in placing its reliance solely upon our report in making credit decisions with respect to the Credit Agreement and it is our understanding that ABC Bank is not relying only on the financial statements compiled by our firm in connection with the Credit Agreement.
Further, the issuance of this letter is not an acknowledgment that ABC Bank will, in fact, rely (or, if so to what extent) on the financial statements and our accountants' report thereon, or that any particular use of our accountants' report and the financial statements to which it relates is reasonable or appropriate. Any use by ABC Bank of XYZ Company's financial statements or our accountants' report is solely a matter of its responsibility and judgment.
(NOTE/OPTIONAL: The CPA may wish to include the following paragraph advising management of its internal management responsibilities): It is management's responsibility to adopt sound accounting policies, and establish and maintain internal controls that will, among other things, provide reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and properly recorded, processed and summarized to permit the preparation of financial statements in conformity with generally accepted accounting principles.
We will not perform procedures with respect to the financial statements subsequent to the date of our report and thus no assurance can be given that possibly significant matters will not arise thereafter.
(Note: If the letter is to be issued subsequent to the date of the CPA's compilation report, add the following paragraph and delete the above paragraph. In addition, the verbs in the opening paragraphs will need to be changed to the past tense.): We have performed no services with respect to those financial statements subsequent to the date of our compilation report and thus no assurance can be given that possibly significant matters did not arise thereafter.
(NOTE: If the letter is to be issued subsequent to the date of the accountants' report, a member should exercise a high degree of caution before acknowledging privity when the requested report relates to financial statements that the CPA believes are "stale"; however, should a member be inclined to so acknowledge, the following paragraph should be added): It should be noted that the financial statements to which our compilation report relates are now (e.g., 12 months old). ABC Bank, in exercising its due diligence, in addition to obtaining whatever other information may be necessary for its purposes, should consider the need to obtain more current financial statements of XYZ Company.
This letter is issued in connection with our compilation report on XYZ Company's 19XX financial statements and does not extend to, nor shall it survive, any subsequent financial statements issued, which are accompanied by an accountants' report, and does not extend to other reports or professional services, if any, which might be rendered in connection with our engagements by the Company. This letter is not intended to establish a client relationship between our firm and ABC Bank as it relates to XYZ Company.
By providing you with this letter and a copy of it to ABC Bank, we are explicitly limiting our liability so as to exclude all parties other than you and ABC Bank pursuant to the New Jersey Accountancy Law, Title 2A of the New Jersey Statutes Section 53A-25.
Sincerely,
CERTIFIED PUBLIC ACCOUNTANTS
cc: ABC Bank
SAMPLE LETTER #5
Sample Response to Client Instructing That Bank May Not Rely Upon Accountant's Services ("No Reliance Letter")
(Note: This letter should be prepared with language specific
to the particular client relationship involved.) XYZ Company (Client)
425 Eagle Rock Road
Roseland, NJ 07068-1723
Dear _____:
We are in receipt of a letter from you dated __________, indicating that the ABC Bank intends to rely upon the 19XX financial statements of XYZ Company, on which we previously issued a report dated _______. Please be advised that ABC Bank may not rely on that report for any purpose whatsoever.
Sincerely,
CERTIFIED PUBLIC ACCOUNTANTS
(Note: A copy of this letter should not be sent to the bank.)
Guide and Model Letters do not represent legal advice. CPAs and their clients are encouraged to seek that advice as appropriate.