Comfort Letter

AAA

DEFINITION of 'Comfort Letter'

A letter given to organizations or persons of interest by external auditors regarding statutory audits, statements and reports used in a prospectus. The comfort letter will be attached to the preliminary statements as assurance that it will not be materially different from the final version.

Also known as "letter of comfort" or "solvency opinion".

INVESTOPEDIA EXPLAINS 'Comfort Letter'

Comfort letters can be used by lenders, such as banks as solvency opinions on whether a borrower can meet the payment obligations of a loan. They are opinions and are not guarantees that the underlying company will actually remain solvent.

Comfort letters can also be used by underwriters as their obligation to carry out "reasonable investigation" into offerings of securities. These letters of comfort will ensure that the reports provided conform to the generally accepted accounting principals (GAAP). This helps the underwriter better understand aspects of the financial data which might not otherwise be reported such as changes to financial statements and unaudited financial reports.

RELATED TERMS
  1. Auditor's Report

    Recorded in the annual report, the auditor's report tests to ...
  2. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  3. Underwriting

    1. The process by which investment bankers raise investment capital ...
  4. Solvency

    The ability of a company to meet its long-term financial obligations. ...
  5. Internal Auditor

    An employee of a company charged with providing independent and ...
  6. Bank Confirmation Letter - BCL

    A letter confirming that a line of credit has been secured from ...
Related Articles
  1. 12 Things You Need To Know About Financial ...
    Investing Basics

    12 Things You Need To Know About Financial ...

  2. Analyze Investments Quickly With Ratios
    Investing Basics

    Analyze Investments Quickly With Ratios

  3. Analyzing A Bank's Financial Statements
    Fundamental Analysis

    Analyzing A Bank's Financial Statements

  4. Brokerage Functions: Underwriting And ...
    Brokers

    Brokerage Functions: Underwriting And ...

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center