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Flashcards in Comfort Letters Deck (9):

What is a Comfort Letter?

Letter delivered by the issuer's auditors that provides certain assurances about the financial information contained in an offering document.


Who is responsible for handling these?

Initial purchasers'/ underwriter's counsel.


What are the different levels of comfort?

Highest - audit opinion
Lowest - negative assurance


What is a circle-up?

It is when initial purchaser counsel circles financial information contained in the offering document outside of financial statements and asks auditors to perform certain procedures to provide the initial purchasers comfort.


How do auditors provide comfort to circled-up numbers?

They provide through a paragraph in the comfort letter that:

(1) States auditors have performed certain procedures on certain numbers throughout the offering document AND

(2) Includes a list of procedures and findings, each of which is assigned a letter or symbol.

These procedures, or "levels of comfort," are generally listed in descending order (meaning the highest, or best, level of comfort is generally level A).


What is a tick-and-tie?

Copy of relevant pages of the offering document (and documents incorporated by reference) on which certain numbers have been circled. Each of the circled numbers is assigned one of letters to indicate which procedures the auditors performed on it. Allows auditors to tie back the numbers that are circled (or ticked) to the appropriate procedure they applied and the conclusion they reached about the accuracy of the number.


What role do issuers and underwriters/ initial purchasers counsel play in securing a Comfort Letter?

(1) Issuers - engages auditors about preparing CL

(2) Initial purchasers - engaged auditors about content of CL

Issuers are the auditor's clients, so issuer may want to be kept abreast of things.


What is the SAS 72 Letter?

It (1) guides the form and content of a CL and (2) limits the parties to whom auditors can issue a comfort letter.


Who receives CL?

Registered offering

(1) Named underwriters
(2) Board of directors of the issuer
(3) Others who have a statutory due diligence defense under Section 11, if they provide a legal opinion confirming this (Section 11 opinion).

Unregistered offering