A comfort letter is a letter delivered by an issuer’s independent accountants to the underwriters or initial purchasers that provides certain assurances with respect to financial information included in a registration statement, prospectus, or offering memorandum used for a securities offering.
What does a comfort letter do?
What Is a Comfort Letter? A comfort letter is a business document that is intended to assure the recipient that a financial or contractual obligation with another party can and will be met. The sender is often an independent auditor or accountant.
Who can issue a comfort letter?
Certified Public Accountant
The comfort letter can be issued by a Certified Public Accountant declaring no indication of false or misleading information in the financial statements and that the company’s prospectus follows the prevailing accounting standards. This is sometimes used in connection with an initial public offering.
What is a comfort letter legal?
A letter of comfort is a written document that provides a level of assurance that an obligation will ultimately be met. A letter of comfort is often couched in vague wording, in order to prevent the issuer from being saddled with a legally enforceable obligation.
Are comfort letters legally binding?
Comfort letters are generally issued by a parent or holding company giving ‘comfort’ to a lender about their support for a subsidiary in the context of a finance transaction. Comfort letters do not create rights over assets and, in most cases, they will not even be legally binding.
Is letter of comfort a guarantee?
Letters of comfort (also known as letters of support or letters of responsibility) are letters of moral commitments given to support certain obligations. Unlike guarantees, these are merely commitments are not legally binding.
Is a comfort letter a guarantee?
Comfort letters (also called letters of awareness, letters of support, letters of responsibility and letters of patronage) are a hybrid between a guarantee and making no commitments at all. They are usually used where the issuer is unable or unwilling to give a guarantee, but wishes to give some comfort to the lender.
Why would a bank accept a comfort letter?
It is usually used where the parent company is unable or unwilling to give a guarantee but wishes to give some comfort to the lender in respect of the subsidiary’s ability to perform its obligations.
Is letter of comfort really a pointless security?
v. Karnataka State Industrial Investment and Development Corporation, the Karnataka High Court had held that the value of such a letter is merely recommendatory and not enforceable per se unless the obligations have been specifically undertaken by the issuer.
What is a circle up in a comfort letter?
That is to say (i) it is considered to be audited information (so that sponsors are not normally required to carry out any further due diligence) and (ii) this is evidenced and recorded in a section of the primary auditor “comfort letter” commonly known as “circle-up” (which refers to the copy pages annexed showing the …
What is a SAS 72 comfort letter?
A SAS 72 auditor representation letter (also called, among other things, a SAS 72 letter, an underwriter representation letter or auditor representation letter) may be delivered by the underwriters or certain other parties to an issuer’s independent accountants (referred to herein as auditors) in connection with that …
What is meant by negative assurance?
Negative assurance is a determination by an auditor that a particular set of facts is believed to be accurate since no contrary evidence has been found to dispute them. Negative assurance is normally used by auditors in situations where it is not possible to positively confirm the accuracy of financial reports.
What is a comfort letter and how do you write one?
A CPA can give out a comfort letter for affirming that the financial statement does not show any signs of false or misleading information and that the scheme of the company follows GAAP. A comfort letter is sometimes used for specific public offerings.
What is a comfort letter from a CPA?
A CPA can give out a comfort letter affirming that the financial statement does not show any signs of false or misleading information and that the scheme follows GAAP. A comfort letter is sometimes used for specific public offerings.
What is a comfort letter from the government?
The federal government may also issue a comfort letter to a borrower or supplier of a public entity to reaffirm support when obligations are not met on time. Three Financial Statements The three financial statements are the income statement, the balance sheet, and the statement of cash flows.
When to issue a comfort letter to a borrower?
The federal government may also issue a comfort letter to a borrower or supplier of a public entity to reaffirm support when obligations are not met on time. A comfort letter is also issued by an auditor together with the preliminary prospectus, after the review of the financial statement
