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A Closer Look at Comfort and Verification Letters
Author(s) -
Noland Thomas G.,
Hardin J. Russell
Publication year - 2018
Publication title -
journal of corporate accounting and finance
Language(s) - English
Resource type - Journals
eISSN - 1097-0053
pISSN - 1044-8136
DOI - 10.1002/jcaf.22305
Subject(s) - business , debt , corporation , accounting , underwriting , loan , database transaction , equity (law) , finance , consolidation (business) , obligation , law , political science , computer science , programming language
Corporations and other organizations may issue, or have issued to them, documents that are referred to as “comfort letters.” Underwriters of public companies will frequently need to obtain comfort letters to aid in an equity or debt issue. Comfort letters are also prepared by other types of entities. Banks will occasionally prepare an informal letter indicating its willingness to support a customer with a short‐term loan. Parent corporations may issue comfort letters to reassure a subsidiary firm's lender or supplier that it will support the subsidiary in case of financial difficulties. Specific terminology used in the letter determines whether such assurance constitutes a binding contract by the parent company or only a moral obligation. When comfort letters are being used by a corporation to support a business transaction, chief financial officers, corporate controllers and treasurers should consult with attorneys and CPAs to make sure unintended obligations do not arise.