Letter from company's auditors to underwriters

• Re: financial statements and financial data
  included in an offering document
• In part, a "bring-down" of the company's audited financials to the date of the offering document
• In part, a documentation of procedures taken by auditor

Intended to support underwriters' due diligence defense

AICPA task force on capsule financial information 2005

• AICPA issued white paper about comfort letters
  on capsule financial information

• White Paper I 1.05
• BMA-SIA statement 10.07.05

• AICPA issued white paper about auditor attendance at due diligence meetings

• White Paper II 8.05
• Withdrawn 10.28.05

WorldCom (SDNY 2004)

AU § 634  Letters for Underwriters

• Text
• Compilation of SAS 72, SAS 76, SAS 86

AU § 722  Interim Financial Information

• Text
• Basis for SAS 71 review
• IAS counterpart is ISA 910

AT § 701   Attestation of MD&A

• AICPA auditing standard
• Compilation of SAS 72, SAS 76, SAS 86

Confirms audit

Confirms auditor independence

Gives negative assurance
"Nothing has come to our attention" about:

• Unaudited financials

• Comply with GAAP
• Comply with SEC rules
• SAS 71 review

• Stub period

• Covers specified financial items for periods subsequent to latest financials included in offering document
• Often focuses on internal management reports
• Whether there have been adverse changes
• Does not address performance against market forecasts

• Unaudited pro forma financials

• Pro forma adjustments properly applied

Circle draft

• "Tick and tie" mark-up of offering document
• Ties individual financial numbers to a confirmed source
• Non-financial data isn't typically covered

Describe differences between US GAAP and local GAAP

• For unregistered offerings, if applicable

135 day rule

• Auditors can't give negative assurance if more than 135 days have passed since last audit or SAS 71 review

Comfort letters aren't expert opinions

• But audited financials are

• See WorldCom (SDNY 2004)

• Limits underwriters ability to rely on comfort letters

Auditor Independence

Due Diligence Defense

Underwriter Liability