Comfort Letter


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".

BREAKING DOWN '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.

  1. Solvency

    The ability of a company to meet its long-term financial obligations. ...
  2. Audit

    1. An unbiased examination and evaluation of the financial statements ...
  3. Generally Accepted Accounting Principles ...

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

    1. The process by which investment bankers raise investment capital ...
  5. Annual Report

    1. An annual publication that public corporations must provide ...
  6. Auditor's Report

    Recorded in the annual report, the auditor's report tests to ...
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