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Finance: What is a Comfort Letter? 6 Views

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Description:

What is a Comfort Letter? When a company’s books are being audited, when new pending issue securities are revising their financials to meet compliance obligations, or when a wholly owned subsidiary is seeking a loan apart from its parent, a comfort letter is a tool that will often be used to calm the waves. It can be from an auditor giving an early opinion to the audited company that their ability to pay its debts looks solid; it can be a letter to auditors that any required revisions will still meet compliance guidelines, or it can give a bank assurance from the parent that it will cover the subsidiary for any possible default.

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Transcript

00:00
Finance a la shmoop what is a comfort letter? S....See the smooth curves there is [An S letter appears]
00:09
that comforting okay okay comfort letter is a letter
00:13
this kind of letter written by an expert usually someone like an auditor or a tax [Expert appears with comfort letter]
00:18
attorney in one form or another who has done deep due diligence into a company
00:24
looked at myriad details and data and volume counts of plastic cubes in their

00:31
inventory and then they've looked at their distribution contracts
00:35
you know with truckers and retail stores and drone deliverers and then they've [Drone flying in the air]
00:40
looked at their bank accounts both the onshore ones and the offshore ones that
00:45
you know they don't really like to talk about and then about 87 ish other things
00:50
that all those people look at and then they write a letter like an actual
00:55
letter which is usually given to the Board of Directors or an acquirer or
01:00
the investigating party whoever that is and that letter states that what the
01:05
company says it has or does is in fact what it has or does which is a good [Man discussing comfort letters]
01:10
thing to know so this letter well it just gives comfort to everyone
01:14
the only challenge can be you know trying not to become too comfortable [Man working near a waterfall]
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