Comfort Letter

What Is a Comfort Letter?

A comfort letter is a business document that is expected to guarantee the beneficiary that a financial or contractual obligation with another party can and will be met. The source is many times an independent auditor or accountant.

The comfort letter doesn't commit to a legally enforceable commitment yet passes the ability of the other party on to satisfy the terms of the agreement being talked about.

A comfort letter is otherwise called a letter of intent or, at times, a solvency assessment.

Understanding the Comfort Letter

A comfort letter fills a need that is like that of a letter of reference or a letter of presentation. That is, a respectable individual or company is validating the authenticity of the party that the beneficiary is thinking about working with.

The letter doesn't go a lot farther than that, however it is frequently joined to more point by point data about the agreement or contract that is getting looked at.

Instances of Comfort Letters

One common type of comfort letter is joined to duplicates of a prospectus to be documented with an investment offering. The letter is written after an audit and guarantees possible investors and different beneficiaries of the prospectus that it doesn't contain false or deceiving data and that any modifications to it won't tangibly change the offer.

A comparative letter might be issued by an auditor to a lender demonstrating the auditor's perspective that the prospective borrower can repay the loan. The letter ensures nothing, yet it proposes that the borrower is financially strong.

Accountants' Letters

Comfort letters likewise might be issued by accounting firms to underwriters promising to carry out "reasonable examination" into new offerings of securities. These letters commit the accounting firm to conveying a report that adjusts to generally accepted accounting principles (GAAP).

Comfort letters will generally be written in dubious language and ordinarily incorporate disclaimers

At long last, one more broad category of comfort letters might be sent by a parent company in the interest of a subsidiary. The parent company could send a letter to a neighborhood bank that is thinking about a loan to the subsidiary or to a provider considering working with the subsidiary. In the two cases, the letter guarantees the beneficiary that the subsidiary is a sound and viable business.

No Promises

Letters of comfort are regularly utilized as a part of carrying on with work in numerous countries. They are rarely viewed as legally binding documents.

Most letters of comfort are written in moderately obscure language and incorporate disclaimers to the effect that the writer is only expressing an assessment, not endeavor an obligation.

Features

• Such letters might be sent by auditors, accounting firms, or parent companies.
• A comfort letter guarantees the beneficiary of the sufficiency of an individual or company it is thinking about working with.
• A comfort letter contains no legally enforceable commitments.