Cold comfort letter: Overview, definition and example
What is a cold comfort letter?
A cold comfort letter is a type of letter issued by an auditor or legal professional to provide limited or no assurances regarding certain aspects of a transaction or a company’s financial position. It is typically issued in response to a request for confirmation or comfort on a transaction, but it does not offer any definitive or conclusive statements about the accuracy, legality, or completeness of the subject matter. The term "cold" reflects the letter’s lack of any substantive guarantee or reassurance. Essentially, the letter is used to acknowledge the existence of the request but does not provide much in terms of comfort or assurance.
Cold comfort letters are commonly used in situations where the auditor or legal professional cannot fully verify or endorse the information, such as when conducting due diligence for a business transaction or providing a preliminary review of financial statements.
Why is a cold comfort letter important?
A cold comfort letter is important because it allows professionals to acknowledge a request without assuming liability or providing full assurances about the accuracy or completeness of the information being requested. This type of letter can help businesses manage expectations and avoid legal complications by making it clear that no formal guarantees or endorsements are being given. It also serves as a communication tool when a party requires some acknowledgment from an auditor or legal advisor but does not need a full, formal report.
For businesses and clients, cold comfort letters are a way to maintain transparency while avoiding overstating the level of certainty that can be provided. It is especially useful when preliminary reviews are needed without full commitments.
Understanding cold comfort letter through an example
Imagine a company that is considering acquiring another business. The acquiring company requests a letter from the target company’s auditor to confirm certain financial information related to the target business. However, the auditor is unable to verify all the details thoroughly due to limited access to the target company's financial records or the transaction’s complexities. The auditor provides a cold comfort letter stating that they have reviewed the requested information, but they cannot guarantee the accuracy or completeness of the data, as their review was limited.
In another example, a bank might request a legal comfort letter from a law firm to confirm that a particular transaction is legally sound. The law firm, after conducting a preliminary review, may issue a cold comfort letter, stating that they have not conducted a full legal review and cannot offer any legal assurances regarding the transaction's validity.
An example of a cold comfort letter clause
Here’s how a cold comfort letter clause might appear in a legal agreement or business document:
“The undersigned auditor provides this letter solely for the purpose of responding to your request. This letter does not constitute an opinion or assurance regarding the accuracy or completeness of the financial statements or other information related to the transaction. The auditor makes no representation regarding the reliability of the information provided, and no liability will be assumed in relation to this letter.”
Conclusion
A cold comfort letter is a type of communication used by auditors or legal professionals to acknowledge a request for information or confirmation without offering substantial reassurance or guarantees. It is often used when full verification or endorsement is not possible, and it provides a way to manage expectations in a transaction or legal context. While it can offer limited insight, it does not carry the same weight or responsibility as a formal assurance letter or opinion.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.