What is an 'Accountant's Letter'

An accountant's letter is a written communication that usually precedes a financial report. An accountant's letter is produced by a company's independent auditors. It summarizes the scope of the accountant's audit and its results in very general terms. The term is frequently used interchangeably with the term "auditor's opinion."

BREAKING DOWN 'Accountant's Letter'

The accountant's letter usually expresses a "clean" opinion, which means the accountant or accounting firm believes the financial statements are accurate and that they fairly present the company's financial condition. A "qualified" opinion indicates deficiencies in the company's procedures or presentation (meaning the financial statements may not be accurate or may not conform to GAAP). The accountant’s report also states the period of time covered by the financial statements as well as the method of accounting (GAAP or cash) the company presenting the statements uses.

An "adverse" opinion, which indicates that a company's financials are misrepresented, is yet another possibility. The most well-known opinion is the "going concern," which means that the accounting firm has doubts about the company's financial health and its ability to remain in business.

What is Included in an Accountant's Letter?

A number of federal and state regulatory agencies issue and enforce requirements that stipulate what information should be included in an accountant’s letter. These include the Commodity Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC) and state regulatory bodies. Among other requirements accountants must meet to support their qualifications to issue accountant’s letters are: that they are independent of the firm’s about which they are issuing opinions; that their practices are in conformance with accounting standards as set out by the American Institute of Certified Public Accountants (AICPA), the industry’s trade association which sets ethical and professional standards and grants credentials; that the accountant has a license issued by the state in which it practices, and that it is a “member in good standing in the AICPA.”

Because the accountant’s letter is disseminated together with a company’s financial reports, it is considered an integral part of analysts' and investors’ view of the firm. Over the years, regulators have launched investigations, filed suit for fraud, and taken enforcement actions against accounting firms for failing to accurately present their opinions as well as for negligence in arriving at their opinions. One major case involved accounting firm Arthur Andersen’s accountant’s letters for Waste Management’s financial reports. In another case, rival firm Price Waterhouse Coopers came under fire in 1999 for allowing client W.R. Grace to provide false numbers in its financial statements while retaining a “clean” audit opinion.

RELATED TERMS
  1. Auditor's Opinion

    A certification that accompanies financial statements and is ...
  2. Qualified Opinion

    A statement written upon the front page of an audit done by a ...
  3. Comfort Letter

    A comfort letter is a written document that provides a level ...
  4. Adverse Opinion

    An adverse opinion is an opinion made by an auditor indicating ...
  5. Auditor's Report

    An auditor's report is issued as part of a company's annual report, ...
  6. Shareholder Letter

    A shareholder letter is a letter written by a firm's top executives ...
Related Articles
  1. Personal Finance

    Career advice: Accounting versus auditing

    Understand the distinctions between accounting and auditing, and learn what each offers new graduates in terms of salary, job security and daily life.
  2. Insights

    A Look At Accounting Careers

    More than just crunching numbers, this career blends detective work with trouble shooting.
  3. Personal Finance

    Accountant: Job Description & Average Salary

    Discover what the job description of an accountant entails, along with education and training, salary and skills necessary for success.
  4. Personal Finance

    Financial auditor: Job details and average salary

    Discover what it means to hold a financial auditor position, including job duties, education and training, required skills and expected salary.
  5. Investing

    A Day In The Life Of An Accountant

    An analysis of the accountant profession, who becomes an accountant, what they do, where they work, and salary ranges.
  6. Investing

    12 things you need to know about financial statements

    Before investing, discover 12 characteristics of financial statements that can help you evaluate companies and increase your chances of choosing a winner.
  7. Investing

    What are Financial Statements?

    Financial statements are a picture of a company’s financial health for a given period of time at a given point in time. The statements provide a collection of data about a company’s financial ...
  8. Insights

    Finding the Right Accounting Certification

    Are you deciding on developing a career in accounting? Having an accounting certification may be the boost your career needs. Find out the right certificate for you.
RELATED FAQS
  1. What are the objectives of financial accounting?

    Learn about the principle objectives of financial accounting, including the furnishing of the financial statements for those ... Read Answer >>
  2. What are the different types of letters of credit?

    Learn more about the different types of letters of credit that are used to facilitate exchanges between parties that might ... Read Answer >>
  3. How does financial accounting differ from managerial accounting?

    Learn about the main differences between financial accounting and managerial accounting, including why one is highly uniform ... Read Answer >>
  4. What are the main advantages and disadvantages to the cost accounting method?

    Read a brief overview of the main advantages and disadvantages of the cost accounting method as it relates to business analysis ... Read Answer >>
  5. Who enforces GAAP?

    Take a deeper look at the private enforcement mechanisms behind the generally accepted accounting principles for American ... Read Answer >>
  6. How legally binding is a letter of intent?

    Find out when a letter of intent (LOI) is binding and non-binding. Understand the role of drafting language, and when an ... Read Answer >>
Hot Definitions
  1. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  2. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  3. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  4. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  5. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  6. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
Trading Center