CPA Australia has seen a spike in banks requesting accountants to sign off on a client’s loan application as a means of assessing a borrower’s ability to service a loan before approving it, potentially shifting liability onto the accountant.
Speaking to Accountants Daily, CPA Australia general manager of external policy Paul Drum said this was a cyclical issue that seems to have reappeared as lenders tighten lending standards.
“We are seeing lenders ask accountants who typically prepare a client’s tax return to sign off on the future viability of a business, which is in effect their capacity to repay a loan or even what percentage they will use a motor vehicle for business purposes in the future,” Mr Drum said.
“This is clearly outside the scope of work the accountant performs for their small business client in most circumstances.
“Members are clearly concerned that what they are being asked to sign is beyond the scope of their engagement with their client and possibly exposes them to future action by the lender should something go wrong. We share those concerns and ask lenders to cease imposing such requests on accountants.”
Under the National Consumer Credit Protection Act, signing a capacity to repay certificate or other similar declarations could be a breach of the law unless an accountant has an Australian credit licence.
ASIC had warned of the practice over a decade ago, noting that such a declaration “shifts the risk of credit assessment from the lender to the accountant”, opening up accountants to potential legal action where the client defaults on the loan.
Mr Drum believes accountants should stay away from providing such declarations, especially where their scope of engagement does not entail such an arrangement.
“We find that members feel pressured to sign such requests from clients as otherwise they may not get the loan,” Mr Drum said.
“Some members who sign off on such requests do not typically follow the pro forma provided by the lender. Instead they use their own words to qualify what they are signing. Whether this is enough to protect an accountant if things go wrong is unknown.
“Accountants are very important to the preparation of quality financial information for small business loan applications. It is the responsibility of the lender to use that and other information to make an appropriate credit assessment, not to seek to pass that role on to the accountants.
“Such requests by lenders may be counterproductive in the long run as it runs the risk of accountants deciding that the potential consequences of preparing financial information for loan applications for a client is too high, leading to lower-quality loan applications and increased difficulty for small business to access finance.”
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Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.