The perils of giving credit assessments to banks

Content Summary

Tony Kaye | January 2020

This article was current at the time of publication.

Tighter bank and financier credit assessment standards have prompted a resurgence in demand for accountants' letters and capacity to repay certificates from lenders, whereby accountants are asked for their opinion on a borrower's debt-servicing capacity.

Some lenders also seek declarations that a loan or lease will be predominately for business use.

Providing such documentation is restricted to holders of an Australian Credit Licence (ACL) under the National Credit Act, or to individuals authorised to provide consumer credit advice under an ACL.

However, even when such restrictions are in place, CPA Australia recommends that practitioners do not provide declarations, especially when asked to assure that a client loan or lease will be predominately for business use.

The risks for practitioners

An incorrect declaration may be deemed to be a false declaration, which may not only be in breach of the Code of Ethics for Professional Accountants but also may have legal ramifications. This, in turn, may affect whether a professional indemnity insurance policy will cover practices.

Paul Drum FCPA, CPA Australia's former General Manager, External Affairs, Policy and Advocacy, says providing an accountants' letter or a certificate for a business's financial capacity to repay debt is highly risky, because it can shift the risk of credit assessment from the lender to the accountant.

Drum says that this practice by lenders is somewhat cyclical.

"For example, prior to the GFC [global financial crisis], they [lenders] had immediate 24-hour turnarounds on loans. They couldn't lend enough money," he says. "During the GFC, a lot of loans were called in because the credit risk was so high."

More recently, loan conditions have changed with lenders' appetite for risk severely diminished.

"That's reflected in the behaviour of lenders and the re-emergence of this practice of — in certain circumstances — asking professional advisers to businesses whether they will assure the borrower can pay," Drum says.

"We're telling our members — and we have done for decades — 'don't make any such assurances'.

"It potentially puts accountants on the hook, depending on precisely what happens. It puts them in an invidious position because they want to help their clients in every way possible.

"They want their clients to have the loans, but it's beyond the scope of their contractual arrangement."

What to look out for

Absolute Accounting Services director Gavin Swan FCPA, based in Erina on the New South Wales Central Coast, says he has received numerous "templated" letters from lenders asking him to vouch for clients.

"It's when they ask us for our opinion on whether the borrower can afford to repay the loan," he says. "I'm not a credit assessor and don't want to be held responsible.

"I'm always very cautious when I get a letter from a bank. You need to check the wording very carefully and don't be afraid to change [it]. I don't have problems with statements of facts, but I do have issues with making predictions.

"We recommend not going guarantor for someone else's loan. Banks should cease and desist in asking for this. I won't say it's a practice that is back with a vengeance, but there have been enough enquiries about it to raise concern."


CPA Australia has a detailed reference guide for public practitioners covering the requirements of the National Consumer Credit Protection Act 2009, as well as guidance on accountants' letters and capacity to repay certificates.