Enhanced Prompt: Comfort Letter from Auditors

You are tasked with drafting a comprehensive Comfort Letter from Auditors for use in corporate securities transactions. This document serves as a critical component in underwriting processes, providing limited assurance to underwriters and other parties regarding financial information in connection with securities offerings.

Context and Purpose

A Comfort Letter (also known as a "cold comfort letter") is issued by independent auditors to underwriters in connection with securities offerings, typically initial public offerings (IPOs) or secondary offerings. The letter provides negative assurance regarding certain financial and accounting matters that are not covered by the auditor's opinion on the audited financial statements. This document must comply with PCAOB Auditing Standard 6101 (AS 6101) and relevant SEC regulations, while carefully balancing the provision of comfort with appropriate limitations on liability.

Document Structure and Requirements

Header and Salutation Section

Begin with the auditing firm's official letterhead, including complete firm name, address, and professional credentials. Date the letter precisely as of the date of issuance, which typically coincides with the pricing or closing date of the securities offering. Address the letter formally to the specific requesting party, most commonly the underwriters or placement agents identified by their full legal names. The salutation should reference any engagement letter or agreement that authorized the preparation of this comfort letter. Ensure the format adheres to professional auditing standards and maintains the formal tone expected in securities transactions.

Introduction and Engagement Identification

Clearly articulate the purpose of the comfort letter within the first paragraph, establishing that it is being provided in connection with a specific securities offering. Identify the registration statement by its SEC file number (e.g., Registration Statement No. 333-XXXXX) and specify the type of offering (e.g., initial public offering of common stock). Reference the specific financial statements that have been audited, including the periods covered and the date of the audit report. Explicitly state that the letter is being provided pursuant to the underwriting agreement dated [specific date] and cite PCAOB AS 6101 as the governing standard for the procedures performed. Include a brief statement acknowledging the auditor's role and the nature of the relationship with the company issuing the securities.

Scope of Review and Procedures Performed

Provide a detailed narrative describing the specific procedures performed by the auditors in connection with this comfort letter. Distinguish clearly between audited financial statements (which are subject to the auditor's opinion) and unaudited interim financial information or pro forma financial data (which are subject only to review procedures). Describe the nature and extent of procedures applied to unaudited information, such as:

• Reading minutes of meetings of stockholders, directors, and relevant committees
• Inquiries of company officials responsible for financial and accounting matters regarding whether there have been any changes in capital stock, increases in long-term debt, or decreases in specified financial statement items
• Performance of specified procedures on interim financial data, including comparison to prior periods and analytical procedures

Specify the time period covered by the procedures, typically from the date of the latest audited financial statements through a date within five business days of the comfort letter date (the "cut-off date"). Emphasize that these procedures do not constitute an audit or review in accordance with PCAOB standards and are substantially less in scope than an examination, the objective of which would be the expression of an opinion.

Negative Assurance and Representations

This section provides the core "comfort" to the underwriters through carefully worded negative assurance statements. Structure this section to address specific items requested in the underwriting agreement, typically including statements such as: "Nothing came to our attention as a result of the foregoing procedures that caused us to believe that..." Follow this language with specific representations regarding:

• Material changes in specified financial statement items during the period from the latest audited balance sheet date to the cut-off date
• Increases in long-term debt or decreases in stockholders' equity during the specified period
• Compliance of the unaudited interim financial information with applicable accounting standards and consistency with audited financial statements

Ensure that all negative assurance statements are precisely worded to avoid creating the impression of providing positive assurance or guarantees. Reference specific dollar amounts, percentages, or financial metrics only when explicitly requested and supported by the procedures performed. Make clear that the negative assurance is based solely on the limited procedures described and does not extend to matters that might have been disclosed through audit procedures.

Limitations, Disclaimers, and Scope Restrictions

Articulate comprehensive limitations on the use and interpretation of the comfort letter. Explicitly state that the letter is solely for the information of the addressees and to assist the underwriters in conducting their investigation of the company's affairs. Include a clear disclaimer that the letter should not be relied upon by any other party or used for any other purpose without the auditor's prior written consent. Specify matters that are expressly excluded from the scope of the comfort letter, including:

• No opinion or assurance regarding the sufficiency of procedures for the underwriters' purposes
• No responsibility for the adequacy of disclosures in the registration statement or prospectus
• No assurance regarding legal matters, litigation outcomes, or regulatory compliance beyond financial statement presentation
• No guarantee that the procedures would necessarily disclose all material changes or inaccuracies
• No updating obligation beyond the cut-off date specified in the letter

Reference relevant professional standards, including AICPA ethics rules and PCAOB independence requirements, to support the limitations on scope and use. Include language clarifying that the auditors assume no responsibility for events or circumstances occurring after the cut-off date.

Closing, Authorization, and Signature

Conclude the letter with a formal closing paragraph that reaffirms the limited nature of the assurance provided and the permissible reliance by the specified parties. State explicitly whether the letter may be included in the underwriting agreement or other transaction documents, and specify any restrictions on further distribution or publication. The signature block must include the full legal name of the auditing firm, the manual or electronic signature of an authorized partner or principal, and the professional designation (e.g., Certified Public Accountants). Include the city and state of the signing office. If required by the engagement, add a statement regarding the firm's registration with the PCAOB and compliance with applicable independence standards.

Final Deliverable Specifications

The completed Comfort Letter should be formatted as a formal business letter on the auditing firm's letterhead, typically ranging from 3 to 8 pages depending on the complexity of the offering and the specific procedures requested. Use clear, professional language that balances technical precision with readability for non-accountant recipients. Ensure all cross-references to financial statements, registration statements, and other documents are accurate and complete. The letter must be internally consistent, with all dates, figures, and references properly aligned. Maintain strict confidentiality and ensure the document is transmitted only through secure channels to authorized recipients.