Comfort letters are informal letters that are sometimes prepared by accounting firms. The subject matter of the letter often centers on the results of a review of financial data associated with a given company. While not considered a binding document, the letter will provide the general opinion of the accountant regarding the current financial status of the company.
It is important to note that the review conducted for the preparation of a comfort letter should not be considered to be a thorough or in depth exploration into the financial workings of the corporation in question. More commonly, the review will be a cursory one that is simply to make sure that the accounting practices currently used by the company are in harmony with any applicable government regulations. As a secondary concern, the review may also involved making sure that the documentation is in order for the company to issue a public offering.
When an accounting firm issues a comfort letter, it is usually at the request of the company that is planning some sort of offering or otherwise considering some sort of business venture that will involve another company. Unlike a formal audit that is designed to go over each aspect of the accounting process in detail, the review for the comfort letter simply makes sure the books are in order and that the entries are logical and consistent. The text of the letter may vary somewhat, but the content normally tends to affirm that the accounting for the corporation appears to be in order. In some instances, the comfort letter may inform the addressee that the review uncovered issues that need to addressed and corrected before proceeding with a public offering or other partnership plans.
At not time should a comfort letter be considered a legal binding document that ensures the financial stability of the corporation. However, if the review associated with the preparation of the letter indicates some irregularities in the accounting process, ordering a full audit may be an excellent idea.