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Accountants to decline ‘capacity to repay’ requests

by Annie Kane7 minute read

Several accountancy associations have advised members to decline requests to provide “capacity to repay” certificates, flagging compliance concerns.

The leaders of CPA Australia, the Institute of Public Accountants (IPA), and the Chartered Accountants Australia and New Zealand (CA ANZ) are advising their 240,000 members not to complete requests for “capacity to repay certificates – citing concerns that some lenders may be relying on these certificates for serviceability purposes.

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The issue largely focuses on requests for accountant’s letters a document prepared by an accountant attesting to an individual’s or business’ financial situation that include a capacity to repay certification or other similar declarations.

This can reportedly place the liability of the lending decision on the accountant, rather than the lending institution, and is unlikely to be covered by their professional indemnity insurance.


While still only impacting a small proportion of loans, these are currently most commonly used by non-bank lenders offering low-doc loans to SMEs. As such, brokers will sometimes be required to request these certifications from accountants to include in loan applications.

Speaking to The Adviser about this issue, CPA Australia’s general manager media and content, Dr Jane Rennie, stated that the practice of asking for accountant’s letters had been ”a thorn in the side of the accounting profession for years”.

“Accountants letters shift 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,” she said.

“But accountants can only make a call about someone’s ability to repay based on the information they receive. If that information is incomplete or faulty, their assessment may be off, but that shouldn’t mean they’re on the hook.”

While ASIC had issued alerts to accountants reminding them of their legal obligation to ensure there was a reasonable basis for providing the certification in 2018 (particularly when being used for loans covered by responsible lending obligations), the use of these statements in lending has reportedly risen.

Dr Rennie told The Adviser: “When COVID hit, there was a jump in the number of these requests from banks, landlords and real-estate agents, among others.

“Accountants could be in breach of the National Consumer Credit Protection Act by signing a ‘capacity to repay’ certificate unless they hold an Australia credit licence. This could put them at risk of legal action.

“Irrespective of whether it’s a bank, broker, landlord or real estate agent who needs it, we’re advising our members to decline requests to provide accountants letters.”

Instead, the accountancy associations are recommending that accountants look to limit their declarations to those regarding their clients’ historical financial circumstances based on information they have personally audited or reviewed.

Lenders and broker associations advised of change

Given the increase in requests for these types of statements, the accountancy associations recently wrote to lenders and broker associations to reiterate their view on the matter.

The managing director of the Finance Brokers Association of Australia, Peter White, confirmed to The Adviser that the body had received a letter jointly signed by the chief executives of CPA Australia, IPA, and CA ANZ last week.

He commented: “Noting not all accountant letters requested by lenders are the same, I sought further clarification on this from the associations, whereby they further advised that accountants can – with their client’s consent – provide a statement of their client’s financial position or other factual information such as Business Activity Statements that can be verified.”

Mr White said the association had advised broker members that this means that they should still be able to obtain accountant letters as long as they are limited to certifying a client’s current financial statement.

However, he suggested that the ability to obtain accountant’s letter would likely become increasingly difficult and said he expected that lenders may move to change credit policies in the near future given the stance of the accountancy profession.

The FBAA MD concluded by stating that the expansion of open banking information may also negate the need for this type of documentation in future.

I think these sort of lenders are almost a part of history now,” Mr White told The Adviser.

Going forward, with responsible lending and open banking that dynamically changes the access to data so why would an accountant need to write such a letter when it can be achieved through open banking?”

[Related: Treasury begins ‘open finance’ consultations]

Accountants to decline ‘capacity to repay’ requests
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Annie Kane

Annie Kane


Annie Kane is the editor of The Adviser and Mortgage Business.


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