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Accountants could face repercussions if they sign these letters and the business or individual defaults.
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Avoid capacity-to-pay letters, warns CPA Australia
25 July 2022
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10 minute read
CPA Australia is warning members their necks are on the line if they sign capacity-to-repay certificates.
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Head of public practice and small and medium enterprises, Keddie Waller, said accountants were being set up to fail with lenders trying to put the blame on someone else if a business or individual could not make repayments.
“Essentially what the lender is doing is shifting the risk from themselves to a third party, and in this case it’s the professional accountant,” said Ms Waller.
“What they’re looking for is recourse. So should a client default on a loan or miss a payment they then have a way of coming back and saying that there was an independent third party, being the accountant, who’s actually said they could afford this loan or understood the terms and conditions of the product, and therefore can seek redress against that accountant.”
Ms Waller said CPA Australia strongly advised members against contemplating these letters.
“Our clear position is that CPA Australia members should not be signing these types of letters, or any associated requests,” she said.
“We really don’t want to see our members being placed in a position where they’re being put at risk.
“We’re in a very challenging economic environment at the moment and things are very fluid so we don’t want members to be put on the hook.”
But she said that did not mean accountants had to leave their clients out high and dry.
“Members can absolutely support their clients through the lending process by providing other financial statements, but signing these letters and other associated requests are just too much risk to face for a practitioner,” said Ms Waller.
She recounted an example of what could happen if things went wrong.
“A few years ago we actually had a CPA Australia member who was nearing retirement,” said Ms Waller.
“They signed a capacity-to-repay certificate for a client and the client unfortunately had not disclosed all of the financial information to the accountant.
“The lender actually sought recourse against our member and it ended up being a claim for over $400,000 plus legal costs.”
Ms Waller said lenders and brokers were asking accountants to predict the future.
“A lot of these are asking professional accountants to really gaze into that crystal ball and try to certify something that’s unknown at this point in time,” she said.
CPA Australia was working with IPA and CA ANZ to raise the issue with lenders and banking associations and halt the practice.
“My absolute clear message to lenders is that they have to stop the practice of outsourcing their lending risk to a third party, and in this case, our professional accountants,” said Ms Waller.
“Accountants are not there to provide assessment assurance guarantees that a client will have the ability to make a repayment for their loan to be approved.
“The lender should be undertaking their own due diligence, as they are legally required to do, and use that instead of a failsafe around accountant certificates and other letters.”
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