A comfort letter is a piece of documentation that an accounting firm provides for a company. The purpose of a comfort letter is to informally provide information that will attest to the financial soundness of the company. In a sense, a comfort letter shows the support of the accounting firm to the company. A comfort letter is requested by a company from its accounting firm for different reasons. One reason could be that the company is considering to issue a public offering. Alternatively, the company may be considering a financial venture that needs proof of financial soundness.
One thing that is important to note about a comfort letter is that it is not considered to be legally binding. As mentioned above, a comfort letter is an informal piece of documentation. It does, however, contain information regarding a financial review of the company. In this sense, a comfort letter does resemble an audit. It must be noted, however, that a comfort letter cannot take the place of a formal audit.
A comfort letter may contain information regarding the financial processes that the company has in place. It may also contain information on how the company is adhering to government regulations. If, for example, a comfort letter highlights some irregularities or issues, the company can then request a full audit to be conducted. If the comfort letter does not show any irregularities, it may be used for the variety of purposes mentioned above. If some time has passed after the issuance of the comfort letter, another document may be necessary. This is called a bring-down letter, the purpose of which is to verify the information contained in the comfort letter.