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What is a comfort letter?

The Securities Act of 1933 has determined that underwriters may be held liable for any omissions that are deemed material in an issuing registration statement. Therefore, a registration party (i.e. broker-dealers, financial intermediaries etc.), will request that a comfort letter is issued from the named auditor prior to the registration of a client’s securities.

In order to receive a comfort letter from the CPA, the registration party will give the auditor a representation letter (e.g. letter from an attorney) in order to confirm that the registration party has a “due diligence defense”.

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