Letters for Underwriters
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CPA Auditing and Attestation (AUD) › Letters for Underwriters
Comfort letters are usually addressed to the client's underwriter of securities and signed by the client's:
Independent auditor
Internal auditor
Management
Staff accountants
Explanation
A comfort letter is a letter from the independent auditor to the named underwriter just before the registration of the client's securities.
Positive assurance is provided with respect to:
A CPA's independence
Comfort letter
The financial statements
None of the answer choices are correct
Explanation
Positive assurance is provided with respect to a CPA's independence.
In the comfort letter, the auditor should
State an opinion
Make reference to the audit
Repeat the audit
None of the answer choices are correct
Explanation
AU 920 indicates that the auditor should make reference to the audit. Section .28 states that “The auditor should, in the comfort letter, make reference to, but not repeat, the report on the audited financial statements included in the securities offering. (Ref: par. .A28)”.
Before agreeing on the scope of services, the auditor should
Obtain an understanding regarding the specific matters
Ask to meet with the requesting party
Clearly communicate no assurance will be provided
All of the answer choices are correct
Explanation
Under AU 920 before agreeing on the scope of services the auditor must obtain certain assurances and perform certain procedures. These procedures include obtaining an understanding regarding specific matters, meeting with the requesting party, and providing clear communication stating no assurance will be provided.
Ordinarily, comfort letters are addressed to:
The underwriters of securities
The client audit committee
The SEC
Creditor financial institutions
Explanation
Comfort letters are addressed to underwriters of securities ordinarily and most likely convey negative assurance on financial information.
The auditor should state in the comfort letter that:
The auditor is not independent
The auditor is independent
The auditor is using generally accepted auditing standards
negative assurances are provided
Explanation
AU 920 requires that the auditors state their independence in the comfort letter. As directed in paragraph .35 “The auditor should state in the comfort letter that the auditor is independent, or the date through which the auditor was independent, with respect to the entity, and identify the applicable independence rules.”