comfort letter

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Comfort letters are statements from an issuer’s auditor that the auditor reviewed the issuer’s financial data and assures its accuracy.

In public offerings, underwriters generally request comfort letters to establish a due diligence defense to avoid liability for securities fraud. That is, if underwriters can point to statements by the auditors in the comfort letter that the financial information is accurate, then they can establish that they did their due diligence to assure that the offerings financial information was accurate and avoid securities fraud liability. 

The form and content of comfort letters follow Auditing Standards 6101 (AS 6101). Comfort letters include, among other information, a statement regarding the independence of the auditors, assurances as to the accuracy of the financial statements, and a description of the procedures used. Importantly, the level of comfort an auditor can offer depends on whether the financial statements have been audited or unaudited. For audited financial statements, auditors will provide the highest level of comfort and express a positive assurance that the financial statements are accurate and conform with accounting standards. For unaudited financial statements, e.g. interim financial statements, auditors will only provide negative assurances on the accuracy of the financial statements. That is, the auditors will only state that they reviewed the statements and did not see any apparent issues. For unaudited financial statements, auditors will often disclaim that they cannot express an opinion. 

[Last updated in January of 2022 by the Wex Definitions Team]