Question

in your own words, please write a few similarities and differences between a comfort letter and an audit?

please dont copy & paste stuff i can research & please provide links to the references you used if you researched

thanks

Answer 1

Hi there,

Here is my answer to the question asked.

Comfort letter :

A comfort letter is a written statement issued by an outside auditor, stating that there is no inaccurate or misleading information in the prospectus of an entity that is issuing securities.

Though an audit is not performed, the comfort letter is essentially stating that audited financial statements would not differ materially from those appearing in the prospectus. Comfort letters are most commonly issued as part of an initial public offering.

A comfort letter only contains an opinion; it is not an assurance or guarantee that the entity being reported upon will remain financially viable. Comfort Letters are also issued in other situations, such as in relation to the issuance of a loan or mortgage.

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 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. comfort letter does not contain any legally enforceable

A comfort letter is also known as a letter of intent or, in some cases, a solvency opinion.

comfort letter assures the recipient of the soundness of an individual or company it is considering doing business with.

With my research o comfort letter., I would suggest you to overview the following links for better understanding on topic.

https://www.google.com/url?sa=t&source=web&rct=j&url=https://media2.mofo.com/documents/faqsrelatingtocomfortletters.pdf&ved=2ahUKEwiUrZLtzunrAhXY8HMBHQSTDOIQFjALegQIAhAB&usg=AOvVaw3NiinDEYWc_T9PzFqhaiHI&cshid=1600120388406

Audit :

Definition: 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.

Description: 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.

Who can perform an audit? In India, chartered accountants from ICAI or The Institute of Chartered Accountants of India can do independent audits of any organisation. CPA or Certified Public Accountant conducts audits in USA.

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 the client.

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.