Business entities are audited in numerous ways and are reported upon to declare their solvency. These reports are often termed business documents and reflect the financial viability of a company. The company under audit must adhere to the audit rules and principles to be declared solvent and clear. The opinions of an auditor matter the most for firms under audit since they are the final words and will spread after that. One such letter/document is the comfort letter, written by the auditor to external parties. The letter carries utmost importance and is heavily emphasized in the business context. This article will explain the term further with its features and types. Keep reading to learn!
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What is a Comfort Letter in Auditing?
A comfort letter is a written statement/document issued by an auditor. The letter state that there is no misleading information in the financial statements or prospectus of a firm being audited. The letter will be sent to those firms who intend to do business with the audited company. When it comes to offering securities, the letter will state that the firm adheres to the applicable accounting demands of SEC 1993.
Brief Overview:
- A comfort letter is now and again utilized for explicit public contributions. This is likewise sporadically offered by individuals who are liable for assessing the assets of the organization.
- Generally, a parent organization gives a comfort letter to its auxiliary as a recorded confirmation. The letter will help the subsidiary to represent the parent company at times when a financial complexity occurs.
- The letter doesn’t imply that the need for the credit is approved or is an acceptable request. The parent company will keep a constant eye on all the transactions.
- These letters are signed before price decisions, public offerings, or any other financial transaction. These records are ordinarily given when the merchant isn’t willing or not ready to guarantee or ensure a specific result.
Features and characteristics:
The letter has some defining features and characteristics. You, as a business owner, should know these features. The letter will describe the position and viability of your company. Do you want to streamline your operations for a better audit opinion? Hire top audit firms in Dubai to help you in the matter. Following are some of the letter’s features you should know about.
- A comfort letter ought to appear in a way that no legitimate customs and little risks are highlighted. Each of those assertions made by the bank or organization should not be invalid and bear significant realities.
- The letter should not create an incidental expense and tax liabilities. It should consistently comprise a disclaimer, a full-definite credit administration user, and a credit administration layout.
- Moreover, the letter should comprise an assertion of awareness from that bank giving credit. It should affirm their comprehension of the relative multitude of set-out commitments.
- The comfort letter ought to show the services they expect to accomplish. With that, the individual writing the letter should not show that it is given as a condition point of reference, yet it should be given as a credit facility.
- Another feature is that the comfort letter doesn’t comprise an expiry date. However, it terminates after the arrangement of the mentioned services. In continuation or where another assistance is to be delivered, a unique comfort letter is written and issued.
- A holding statement is another significant thing to be considered in a comfort letter. The holding statement ought to be as at the time of issuance of the letter.
Types of Comfort Letter:
Once the audit is done, the auditor will prepare several assertions and business documents to express his/her opinion. One of these expressive documents is the comfort letter which comes in the following types.
i) The accountants’ comfort letter:
The comments of the accountant can have significant impacts on any business. He will provide relevant financial statements and comments on the consistency of the firm under audit. When it comes to checking the borrowing or credit behavior of the firm, the accountants’ comfort letter can help.
ii) Comfort letter of a company:
The organization giving out the comfort letter may feel it troublesome on occasion to acknowledge the commitment. It is extremely hard for minor organizations to give confirmations. Certifications or confirmations are significant in the reinforcement, and their administrations are cut short after the expiry date of the agreed period.
iii) Underwriter’s comfort letter:
An underwriter ensures that the data in the letter of comfort is in good shape. They confirm that no mistakes were made when the examination and letter were being completed. They give composed proof that conventional exploration was made and the data given out is exact. The role of audit firms comes into play when you are keen to write out a well-designed letter. These experts will ensure your business operations comply with the set standards.
Make your company compliant with professional auditing firms!
Companies always seek partners to help them streamline their business operations. Amid this hunt, audit firms can be of great help. Connecting with them can bring about numerous advantages to the firm. You should also consider hiring one for your business!
Related: A Brief Guide about International Financial Reporting Standards
