Model Privity forms and Letters


Guide and Model Letters do not represent legal advice. CPAs and their clients are encouraged to seek that advice as appropriate. 

Generally, the letter should contain:

  • An identification of the engagement to which the professional service relates.
  • An acknowledgment that the professional service is to be furnished to a named third party in connection with a particular transaction, contract, or agreement and that the accountant is aware that the third party has indicated an intention to rely on the professional service in connection with the transaction, contract or agreement.1
  • A statement that the professional services were performed in accordance with the applicable professional standards, followed by a description of the purpose and inherent limitations of the particular engagement involved.
  • A statement that the third party must exercise its own due diligence.
  • A statement restricting the letter to the particular report or professional services described within the letter, and a statement that the accountant's acknowledgment of privity does not apply to reports or professional services that may be issued in connection with other current or future engagements.

Accountants should be cautious that their use of the model reliance letters does not breach any requirement in the accountant's professional liability insurance contract or otherwise conflict with policies of their carrier. Consequently, the accountant should consult with his or her insurer prior to using any model letter. Failure to do so could result in a loss of insurance coverage.

The model letters are intended to provide guidance on developing a letter where the services involve audits, reviews, compilations, preparation of financial statements and certain tax engagements involving a complete set of historical financial statements. Also, there is a letter for situations where the accountant does not believe the third party should rely upon the work performed for the client. These letters are not intended as legal advice, and do not cover all situations, particularly when other types of services are provided, or if there are report modifications for matters such as scope limitations, reliance of other auditors, or going-concern problems. Accountants should consult with legal counsel when revising the model letters to ensure they address professional standards involving report modifications. 

Privity Letters Regarding Tax Returns

Many practitioners have been requested to provide privity letters regarding tax returns. Where a request is made for a tax return in conjunction with a financial statement that covers the same period, we believe that the privity letter should only cover the financial statement, as it involves the higher level of professional service, and that the tax return is merely ancillary to that financial statement. This should be discussed with the client and the bank representatives. 

With increasing frequency, privity requests are being received for tax returns. For the most part, these requests involve corporate or partnership returns with a balance sheet and profit and loss schedule that has been or will be issued without an accompanying financial statement. Since preparation of tax returns is a very limited service that does not require application of generally accepted auditing standards (“GAAS”) or the Statements on Standards for Accounting and Review Services (“SSARS”), you may want to consider denying the request because your tax preparation responsibilities were limited and did not involve verifying, testing or analyzing the information. However, if you decide it is appropriate to grant privity to the third party,you should affirmatively state the significant limitations in the services provided, refuse to make any affirmative statements requested by the third party that cannot be reasonably stated based on the limited services provided, and make sure that the third party is aware that the financial information is reported pursuant to a special purpose framework (i.e., tax basis) and not in accordance with generally accepted accounting principles (“GAAP”). In addition to consulting an attorney or risk management professional, you also may want to review the forms in this Privity Guide for the content of such a letter.

Changes in lending practices also have resulted in increased requests by lenders for the preparers of personal income tax returns to grant the lender privity. These requests are frequently accompanied by additional requests that the preparer confirm certain facts or scenarios. Similar to the privity requests relating to entity tax returns, you may want to consider denying the request because your tax preparation responsibilities were limited and did not involve verifying, testing or analyzing the information. Additionally, you should carefully scrutinize any related request that you confirm any facts or potential scenarios. Frequently, these additional requests cannot be responded to based on the limited services provided, so you should exercise extreme caution. The circumstances under which you would grant privity in connection with a personal tax return should be limited, so you should review this decision carefully with an attorney or risk management professional.


1 The opening paragraph of the model privity letters sometimes refer to a "credit agreement dated...." The New Jersey Bankers Association has advised us that some agreements, presumably with smaller customers, may be less formal, and may in fact be oral agreements. It is important for the CPA to discuss the nature of and terms of the lending agreement between his client and the bank and to be as specific as possible in describing the credit agreement in the privity letter. 

  In This Section