Comfort Letters

Question 1

Objective :”Letters for Underwriters and Certain Other Requesting Parties”

Answer 1

The standard states that the auditor’s objectives, when engaged to issue a letter to a requesting party in connection with a nonissuer entity’s financial statements included in a securities offering, are to appropriately address: (1) the acceptance of the engagement and the scope of services, and (2) issue a letter with the appropriate form and content.

Question 2

Purpose

Answer 2

Section 11 of the Securities Act of 1933 (the Act) provides for liability to underwriters and certain others (such as a broker-dealer or a financial intermediary) when there is a material omission or misstatement to a registration statement

A comfort letter from the entity’s auditor may help underwriters or others having a statutory due diligence defense under Section 11 of the Act establish a reasonable investigation (i.e., due diligence).

not required by or filed with SEC

Question 3

Reporting Structure

Answer 3

A. An introductory paragraph that identifies the particular registration statement and the audited financial statements and schedules with which the auditor is associated;
B. A statement as to the auditor’s independences;
C.
Positive expression of opinion – Whether the audited financial statements and schedules comply as to form with the accounting requirements of the Act and the SEC (if a review under GAAS has been performed); if a review of the interim information has not been performed, the auditor is limited to reporting the procedures performed along with the findings;
D.
Negative assurance – Whether the unaudited condensed interim financial information complies as to form with the requirements of the Act and the SEC;
E.
Negative assurance – Whether any material modifications should be made to the unaudited condensed consolidated financial statements;
F.
Negative assurance – Whether there has been any change during a specified period in capital stock, increase in long-term debt, or any decrease in other specified financial statement items;
G. A concluding paragraph that limits the distribution of the comfort letter to specified parties for the purposes stated.