ABA scraps accountants’ letters, but risks for practitioners remain

This article was current at the time of publication.

Australian Banking Association (ABA) member institutions will soon no longer be asking accountants to certify that their small business clients have the financial capacity to service loans.

This follows recent approval of the ABA’s 2025 Banking Code of Practice, which incorporates a range of updates to its banking rules that will come into effect from 28 February, 2025. 

“We will not ask a third party (such as your accountant) to certify that you can repay the Loan,” states clause 78 under Part B5: Lending to Small Business of the revised Banking Code of Practice.

The ABA’s code says that when assessing whether borrowers can repay a loan, lenders will do so by considering either their financial position or account conduct, or both. Where relevant, lenders may also consider projected future cash flows.

A risky business

Lenders’ requests to accountants to provide signed “capacity to repay certificates” on behalf of clients has long been a contentious issue.

They’ve become particularly contentious in recent times as lenders’ requests for them have increased at a time when deteriorating economic conditions have put many small businesses under heightened financial pressure.

Also known as “accountant’s declarations”, lenders may ask accountants to confirm in writing that they’ve fully assessed a client’s financials and then sign off on the borrower’s ability to make loan repayments.

This effectively exposes accountants signing them to potential legal recourse, including large financial claims from lenders, should a client they have vouched for default on a loan or miss a repayment.

“Some accountants are pressured by clients to sign such capacity to repay certificates,” says Belinda Zohrab-McConnell, Regulation and Standards Lead at CPA Australia.

“It can put them in a very awkward position. Regardless of whether they  have known a client for a long time our recommendation has been to decline such requests because credit assessment is the responsibility of the lender. So, we’re happy this ABA change is being made.”

Requests from non-ABA lenders

The ABA’s core membership includes the 20 largest financial institutions in Australia and encompasses the four major banks and their subsidiaries, regional banks, and international banks.

While the ABA’s Code of Practice changes are a welcome step, practitioners do need to be aware that they do not extend to the full spectrum of lenders operating across Australia.

“If you’re asked by a client for a letter, see who their lender is,” says Zohrab-McConnell. “If it is a bank which is a signatory to the 2025 Banking Code of Practice, they should no longer ask for one. If it’s a non-bank lender, we recommend accountants decline to provide a letter to a client, because it may not be appropriate.”