Question

what are the similarities and differences between a comfort letter and an audit?

please write as much as you can!

Answer 1

Comfort Letter

A comfort letter is a business document that is intended to assure the recipient that a financial or contractual obligation with another party can and will be met. The sender is often an independent auditor or accountant.

The comfort letter does not make a legally enforceable commitment but conveys the ability of the other party to fulfill the terms of the agreement under discussion.

A comfort letter is also known as a letter of intent or, in some cases, a solvency opinion.A comfort letter serves a purpose that is similar to that of a letter of reference or a letter of introduction. That is, a respectable individual or company is attesting to the legitimacy of the party that the recipient is considering doing business with.

The letter doesn't go much farther than that, but it is often attached to more detailed information about the agreement or contract that is under consideration.

KEY TAKEAWAYS

• A comfort letter assures the recipient of the soundness of an individual or company it is considering doing business with.
• Such letters may be sent by auditors, accounting firms, or parent companies.
• A comfort letter does not contain any legally enforceable promises.

AUDIT

Audit is the examination or inspection of various books of accounts by an auditor followed by physical checking of inventory to make sure that all departments are following documented system of recording transactions. It is done to ascertain the accuracy of financial statements provided by the organisation.

Audit can be done internally by employees or heads of a particular department and externally by an outside firm or an independent auditor. The idea is to check and verify the accounts by an independent authority to ensure that all books of accounts are done in a fair manner and there is no misrepresentation or fraud that is being conducted.
All the public listed firms have to get their accounts audited by an independent auditor before they declare their results for any quarter.
There are four main steps in the auditing process. The first one is to define the auditor’s role and the terms of engagement which is usually in the form of a letter which is duly signed by theclient.

The second step is to plan the audit which would include details of deadlines and the departments the auditor would cover. Is it a single department or whole organisation which the auditor would be covering. The audit could last a day or even a week depending upon the nature of the audit.

The next important step is compiling the information from the audit. When an auditor audits the accounts or inspects key financial statements of a company, the findings are usually put out in a report or compiled in a systematic manner.

The last and most important element of an audit is reporting the result. The results are documented in the auditor’s report.