What Is a Comfort Letter?
A comfort letter is a industry document that is intended to ensure the recipient {{that a}} financial or contractual felony duty with each and every different birthday party can and could be met. The sender is forever an independent auditor or accountant.
The comfort letter does not make a legally enforceable determination then again conveys the ability of the other birthday party to fulfill the words of the agreement underneath discussion.
A comfort letter is regularly known as a letter of intent or, in some instances, a solvency opinion.
Understanding the Comfort Letter
A comfort letter serves a goal that is similar to that of a letter of reference or a letter of creation. That is, a tight particular person or company is attesting to the legitimacy of the birthday party that the recipient is considering doing industry with.
The letter does no longer move so much farther than that, then again it is forever hooked up to further detailed information about the agreement or contract that is under consideration.
Key Takeaways
- A comfort letter assures the recipient of the steadiness of an individual or company it is considering doing industry with.Â
- Such letters could also be sent via auditors, accounting firms, or father or mom firms.
- A comfort letter does not come with any legally enforceable promises.
Examples of Comfort Letters
One common type of comfort letter is connected to copies of a prospectus to be filed with an investment offering. The letter is written after an audit and assures potential patrons and other recipients of the prospectus that it does not come with false or misleading information and that any revisions to it will not materially industry the offer.
A an an identical letter could also be issued via an auditor to a lender indicating the auditor’s opinion that the prospective borrower is able to repay the loan. The letter does not make sure that anything, but it surely indubitably implies that the borrower is financially sound.
Accountants’ Letters
Comfort letters moreover could also be issued via accounting firms to underwriters promising to carry out “reasonably priced investigation” into new possible choices of securities. The ones letters commit the accounting corporate to delivering a document that conforms to most often authorized accounting concepts (GAAP).
Comfort letters tend to be written in obscure language and most often include disclaimers
In any case, each and every different massive magnificence of comfort letters could also be sent via a father or mom company on behalf of a subsidiary. The daddy or mom company might send a letter to a space monetary establishment that is considering a loan to the subsidiary or to a supplier taking into account doing industry with the subsidiary. In every instances, the letter assures the recipient that the subsidiary is a sound and viable industry.
No Promises
Letters of comfort are routinely used as a part of doing industry in many countries. They are rarely considered legally binding forms.
Most letters of comfort are written in rather obscure language and include disclaimers to the have an effect on that the author is just stating an opinion, not undertaking an obligation.
