Have you ever applied for a loan through a bank or lender and been asked to provide a ‘capacity to repay’ certificate or ‘accountants letter’ to support your application? If you answered yes, you’re not the first.
While this may seem like a simple request, it can be a lot more complicated given the limitations on what accountants can and can’t sign off on.
In fact, accountants are now being advised by the Joint Accounting Bodies (JAB) (Chartered Accountants Australia and New Zealand, CPA Australia, and the Institute of Public Accountants) to decline any and all requests for these certificates.
So can your accountant provide you with a ‘certificate to repay’ certificate?
Short answer; No.
But with requests for these certificates once again on the rise, we wanted to explore exactly why our accountants are unable to provide you with a ‘capacity to repay’ certificate or ‘accountants letter’.
What is a ‘capacity to repay’ certificate?
A ‘capacity to repay’ certificate, is a document requested by the bank or lender as part of their finance approval process when you are applying for credit or loans. The letter is intended to assess and verify your capacity to repay the intended loan or borrowing amount.
The bank or lender will often ask that you request this certificate from your accountant, to shift the credit assessment risk from themselves onto the accountant. They do this in an attempt to revoke responsibility if the finance is unviable or the client doesn’t actually have capacity to repay the borrowing amount.
Why can’t my accountant provide this certificate?
According to CPA Australia, unless your accountant is licensed under an ACL (Australian Credit Licence), they cannot provide a certificate or assessment relating to whether a client will be able to meet their financial obligations under a credit contract (accountant’s letter or capacity to repay certificate).
The credit assessment remains solely the responsibility of the bank or lender, of which they have specific obligations under their credit license when making such assessments.
In a joint letter, the Joint Accounting Bodies (JAB) (Chartered Accountants Australia and New Zealand, CPA Australia, and the Institute of Public Accountants) have stated the “the determination of capacity to repay must be made by the lender. The lender cannot ask applicants to engage third parties to determine their capacity to repay as part of the loan application. Professional accountants cannot provide any assessment, assurance or guarantees that a client will have the ability to make the repayments should their loan be approved.”
What CAN my accountant provide?
Upon request, your accountant can provide information regarding your financial position that can be factually verified, such as Financial Statements, Activity Statements, ATO Client Account Statements, past Tax Returns and Notice of Assessments.
These are documents that verify your financial position, but are not credit assessments made by your accountant regarding your ability or capacity to borrow.
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The material and contents provided in this publication are general and informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.