When borrowers apply for a mortgage, business loan, or even a CPA comfort letter for mortgage refinance, lenders often request documentation from a CPA. But not all CPA-issued letters are the same. Two of the most common, CPA comfort letters and CPA verification letters, serve very different purposes, follow different professional standards, and carry different levels of responsibility for the accounting firm.
Understanding the distinction between a non-assurance comfort letter and a third-party verification letter helps borrowers, especially self-employed clients, navigate lender requests with confidence and avoid compliance problems for the CPA.
Why Lenders Request CPA Letters in the First Place
Mortgage lenders, whether they are, Conventional Lenders, Portfolio Lenders, Fannie Mae (FNMA), Freddie Mac (FHLMC), FHA, VA, USDA, or Non-QM lenders, use CPA letters only when they need clarification about a borrower’s business or financial activity.
Common situations include:
- A Self-Employed Borrower with fluctuating income
- An applicant who owns a Partnership, LLC, or Corporation
- Requests for business ownership confirmation
- When the Automated Underwriting System (AUS), such as Desktop Underwriter (DU) or Loan Product Advisor (LPA), flags missing or inconsistent business data
- When a Mortgage Loan Officer (MLO) needs a statement to support underwriting
- When a Loan Processor or Underwriter requires a factual confirmation
Borrowers often assume the CPA can “verify income” or “guarantee financial accuracy.” But professional standards set by the AICPA (American Institute of Certified Public Accountants), state laws, and AICPA Code of Professional Conduct strictly limit what a CPA is allowed to say.
CPA Comfort Letter vs. CPA Verification Letter
Before diving deeper, here is a simplified comparison:
| Feature | CPA Comfort Letter | CPA Verification Letter |
| Type | Non-assurance letter | Third-party factual verification |
| Purpose | General clarification | Confirming objective, verifiable facts |
| Information Source | Client-provided information | CPA-held records, tax filings, or financial statements |
| Assurance | None | No assurance, but stronger factual verification |
| Used by Lenders? | Rarely accepted | Commonly accepted, especially during underwriting |
| Examples | Self-employment status, business activity, date business started | K-1 ownership %, EIN, business existence, tax filing confirmation |
| Risk to CPA | Lower | Higher (requires strict compliance with standards) |
What Is a CPA Comfort Letter?
A CPA comfort letter is a non-assurance, limited-purpose letter where the CPA relays client-provided information without verifying its accuracy.
Key Characteristics of a Comfort Letter
- It is non-assurance under AICPA guidelines.
- The CPA provides general clarification, not factual confirmation.
It relies entirely on what the Borrower / Client says.
- The CPA explicitly states “no verification of accuracy was performed.”
- It may explain business activity in plain language.
- It cannot include assurance-style language prohibited under
- AICPA Code of Professional Conduct
- State Board of Accountancy rules
- Third-Party Verification Standards
Examples of What a Comfort Letter Might State
A comfort letter may confirm:
- The borrower is self-employed
- The business appears active based solely on client-supplied documents
- The CPA prepared the tax returns (1040, Schedule C, 1120, 1120-S, 1065)
- The CPA has worked with the client during specific tax years
- The business maintains bookkeeping records
But it cannot say:
- The borrower earns $X monthly
- The business is profitable
- The income is expected to continue
- The CPA “verifies” or guarantees income stability
Any such statements would violate assurance vs. non-assurance standards.
When Lenders Ask for Comfort Letters
Mortgage lenders occasionally request comfort letters for:
- CPA comfort letter for mortgage refinance applications
- Self-employment confirmation
- Requests during manual underwriting for Non-QM programs
However, most large lender programs, especially Fannie Mae, Freddie Mac, FHA, VA, and USDA, do not allow comfort letters as a substitute for financial documentation.
Comfort letters remain supporting documents, not verification.
What Is a CPA Verification Letter?
A CPA verification letter (also called a third-party verification letter) is a factual confirmation issued by a CPA based on records the CPA already maintains.
What a Verification Letter Can Confirm
A verification letter may include:
- Legal business name
- Type of entity (LLC, S-Corp, C-Corp, LP, LLP, GP, Sole Proprietorship)
- Ownership percentage
- EIN confirmation
- Years the CPA has prepared business tax returns
- Existence of financial statements
- Confirmation that the CPA prepared or filed returns with the IRS (Internal Revenue Service)
- Whether the business is active (based on actual filings)
What Makes It Different From a Comfort Letter
- It is grounded in CPA-held records, not client-provided statements.
- It may confirm business ownership, activity, or filing history.
- It does not provide assurance but follows stricter third-party verification standards.
- It aligns with the AICPA’s rules regarding non-assurance letters in a verification context.
Why Lenders Prefer Verification Letters
Underwriters prefer verification letters because they rely on:
- IRS tax returns
- K-1 forms showing ownership
- CPA-prepared financials
- Documented business activity
These letters carry more weight and reduce lender risk, especially in Conventional, Portfolio, and Non-QM loan programs.
Assurance vs. Non-Assurance Standards: The Core Difference
To understand the distinction, you need to know the four categories of CPA engagement standards:
Audit Standards (High Assurance)
A CPA obtains reasonable assurance and expresses an opinion. Never used for lender letters.
Review Standards (Moderate Assurance)
Provides limited assurance that no material modifications are needed.
Compilation Standards (No Assurance, Financial Statements Only)
A CPA assembles financial information but cannot verify accuracy.
Non-Assurance Letters (Comfort or Verification Letters)
- No opinion
- No assurance
- No guarantee
- No forward-looking statements
Mortgage lender letters fall into this fourth category.
When Should Borrowers Request One Letter Over the Other?
Use a CPA Comfort Letter When:
- You only need a basic explanation of self-employment
- The lender requires clarification rather than verification
- Your CPA does not have enough records to confirm facts
- You are working with a Non-QM lender or portfolio lender open to flexible documentation
Use a CPA Verification Letter When:
- The lender program requires factual confirmation
- You are dealing with FHA, VA, USDA, or conventional underwriting
- AUS findings (DU/LPA) flagged missing business information
- You need confirmation of ownership, business activity, or tax filing
Why Some Lenders Reject Comfort Letters
Many mortgage lenders do **not** accept comfort letters because:
- They contain no verification
- They rely on client-supplied information
- They cannot confirm income stability
- They cannot address continuity of business
- They violate Fannie Mae and Freddie Mac rules if used incorrectly
Underwriters must rely on:
- IRS tax transcripts
- Profit & Loss statements
- Bank statements
- K-1 forms
- Business financial records prepared under approved standards
A comfort letter is helpful but not a substitute for documentation.
The CPA’s Role and Professional Responsibility
CPAs must follow:
- AICPA Code of Professional Conduct
- State Board of Accountancy ethics rules
- Third-Party Verification Standards
CPAs must avoid:
- Assurance language
- Income projections
- Guarantees
- Statements about future performance
If a lender requests prohibited language, the CPA must decline.
Borrower Tips for Getting the Right Letter From Your CPA
Explain exactly what the lender is asking for
Show the lender request to your CPA to ensure it is compliant.
Ask the lender whether they need a comfort letter or a verification letter
Underwriters know the difference even if many borrowers don’t.
Gather your supporting documents
This may include:
- IRS tax returns
- K-1s
- Financial statements
- Profit & Loss statements
- Business registration records
Understand your CPA may decline inappropriate requests
CPAs cannot violate professional standards.
