Comfort letter definition
/What is a Comfort Letter in an Initial Public Offering?
A comfort letter is a written statement issued by an external auditor , stating that there is no inaccurate or misleading information in the prospectus of an entity that is issuing securities. Though an audit is not performed, the comfort letter is essentially stating that audited financial statements would not differ materially from those appearing in the prospectus. Comfort letters are most commonly issued as part of an initial public offering . A comfort letter only contains an opinion; it is not an assurance or guarantee that the entity being reported upon will remain financially viable in the future. As such, the assurance provided only relates to the current status of a business, and not to its future financial performance.
What is a Comfort Letter in a Lending Arrangement?
An auditor may issue a comfort letter to a lender, stating that a party applying to the lender for a loan is capable of repaying the loan. The auditor is not making a guarantee, but rather is merely stating that the prospective borrower appears to be financially solvent, based on its most recent set of financial statements.
