Accountants' reports on mortgages
In the current market, when the world’s financial markets are in disarray and the global economy has yet to stabilise, there is an increasing amount of interest in reports that accountants can provide.
Independent accountants play a vital role in enhancing the reliability of financial information prepared by businesses of all sizes and in all sectors. Now, more than ever, they are in the limelight and this creates challenges, given the commercial reality of pressure to keep fees low.
For some time now, ICAEW has been discussing, with the FSA, the Council of Mortgage Lenders and the Building Societies Association, the issue of accountants’ reports on mortgages. ICAEW has existing guidance in this area, which provides accountants with information on what to do when receiving such requests from banks, building societies and other lenders on the financial status of their clients when they intend to obtain a loan or enter into some other obligation. Further guidance can be found in Audit 2/01, Requests for References on Clients’ Financial Status and their Ability to Service Loans.
Accountants should only provide these where there is no need to perform any work, research or investigation to produce the reference, and no fee should be charged. Where lenders are asking for an accountant’s opinion or report on pre-printed forms on whether the client will have sufficient income to service a proposed loan, firms should explain to lenders that they are unable to provide such an opinion and are ‘unable to report in positive terms on future income or future solvency’, as well as that ‘no amount of enquiry can provide accountants with the assurance needed to enable them to confirm that a client will have sufficient income to service a loan or other obligation’.
HMRC joins up with mortgage lenders to combat mortgage fraud
Following a successful pilot, 1 September saw the formal launch of an important new scheme to combat mortgage application fraud.
HM Revenue & Customs, the Council of Mortgage Lenders and the Building Societies Association have worked together on the development of the Mortgage Verification Scheme and see it as an important additional tool to help beat fraud. The National Fraud Authority estimates the cost of mortgage fraud at £1 billion last year, so measures to tackle it are important.
The scheme was announced in the March 2010 budget and has been refined during the pilot period since. Use of the scheme will be limited to cases where lenders reasonably suspect, following their own rigorous checks, that mortgage fraud may be taking place.
More information can be found at www.cml.org.uk/cml/media/press/3039.
Sumita Shah, Technical Manager, Practice Risk and Public Sector Audit
This article first appeared in Audit & Beyond, newsletter of the ICAEW Audit and Assurance Faculty in November 2011.