When conducting a comfort letter engagement, the auditor shall comply with relevant ethical requirements.^[3]

Nothing in this ASRS requires the auditor of an entity to accept a request to prepare a comfort letter, and the auditor shall evaluate all such requests in terms of individual engagement circumstances.

When a comfort letter is requested from more than one auditor, the requirements of this ASRS apply to each auditor.

Preconditions for Providing a Comfort Letter

The auditor shall, prior to agreeing the terms of providing the comfort letter:

1. discuss with the responsible party of the entity who the requesting parties are that the comfort letter will be provided to;
2. obtain an understanding of the applicable financial reporting framework used in the preparation of each type of financial information and the internal control environment for any change period financial information;
3. discuss with the requesting parties and the responsible party of the entity to: (Ref: Para. A3)
   1. understand the specific matters to be addressed in the comfort letter;
   2. understand whether a bring down comfort letter will be required covering change period financial information;
   3. understand the nature of the transaction giving rise to the preparation of the offering document, the jurisdiction(s) into which the offering document will be issued and applicable law or regulation that may affect the comfort letter;
   4. confirm that the financial information that is the subject of the comfort letter does not include a financial forecast; (Ref: Para. A4)
   5. understand the procedures that the requesting parties have specified to be performed for each type of financial information, and explain in any discussion of procedures that the auditor cannot and will not provide any assurance regarding the sufficiency of the procedures for the requesting parties' purposes;
4. confirm whether the responsible party of the entity^[4] acknowledges and accepts their responsibility for:
   1. the preparation of the offering document;
   2. the preparation and presentation of the financial information included in the offering document in accordance with the entity's selected applicable financial reporting framework;
   3. the inclusion of financial and other information in the offering document that is complete and does not include any information that is unacceptable or misleading for its intended purpose;
   4. the maintenance of proper financial records and systems which facilitate the preparation of the financial information;
   5. such internal control related to financial reporting as the entity determines is necessary to enable the preparation of financial information that is free from material misstatement and fraud;
   6. providing the auditor in a timely manner with:
      • access to all information (including a copy of the final offering document) and persons within the entity;
      • written representations covering all matters requested by the auditor; and
      • an update on any information the responsible party becomes aware of during the engagement that may impact the comfort letter;

If the preconditions for providing the comfort letter set out in paragraph 14 of this ASRS are not present, the auditor either:

1. does not agree to prepare the comfort letter in accordance with this ASRS; or
2. chooses not to accept the engagement.

Agreeing on the Terms of Engagement

The auditor shall document the agreed terms of engagement in an engagement letter, addressed to the responsible party of the entity and requesting parties, which shall include, at a minimum:

1. an introduction that summarises the auditor's understanding of the nature of the transaction giving rise to the preparation of an offering document;
2. a statement identifying the addressees of the comfort letter; (Ref: Para. A8)
3. statements that the engagement will be conducted in accordance with this ASRS, in compliance with relevant ethical requirements, including independence, ^[5] and the applicable law and regulation of Australia; (Ref: Para. A9)
4. a statement that the agreed purpose of the engagement is to provide a comfort letter to the addressees solely for use by the responsible party of the entity and requesting parties in seeking to establish a due diligence defence, and accordingly the comfort letter is restricted in its distribution to only the addressees, or otherwise by prior written consent;
5. statements in respect of the work to be performed:
   1. that the auditor will perform the procedures specified by the requesting parties up to a certain date in respect of particular financial information related to, and/or included in the offering document and will report results or the auditor‟s statement in the comfort letter within the agreed timeframe; (Ref: Para. A9)
   2. if applicable, that the auditor will provide a draft copy of the comfort letter, containing the expected form and content of the comfort letter, together with a statement that there may be circumstances where the final comfort letter may differ from the draft; (Ref: Para. A10)
   3. that the sufficiency of the comfort letter procedures for the requesting parties' purposes is for the requesting parties to decide, and not the auditor; (Ref: Para. A11)
   4. if applicable, that the auditor will provide a draft copy of the bring down comfort letter in respect of certain change period financial information selected by the requesting parties;
6. the responsibilities of the responsible party of the entity, including those set out in paragraph 14(d) of this ASRS;
7. the responsibilities of the requesting parties, including those set out in paragraph 14(e) of this ASRS; and
8. other such terms or conditions that the auditor considers appropriate in the circumstances. (Ref: Para A12-A13)

The auditor shall endeavour to obtain a signed engagement letter from the responsible party of the entity and requesting parties.  If the requesting parties do not agree to sign the engagement letter, the auditor shall perform such procedures as in the auditor’s professional judgement are appropriate to ensure the auditor is satisfied the requesting parties understand the terms of the engagement.  If the responsible party of the entity does not agree to sign the engagement letter, the auditor shall not accept the engagement. (Ref: Para. A14)

Draft Comfort Letter

If agreed to in the terms of engagement as set out in paragraph 16 of this ASRS, the auditor shall provide a draft of the expected form and content of the comfort letter to the requesting parties in a timely manner. (Ref: Para. A15)

The draft comfort letter shall be clearly identified as a draft to avoid giving the impression that the procedures described in the draft have been performed.  To the extent possible, the draft comfort letter shall deal with all matters to be covered in the final comfort letter and use exactly the same terms as those to be used in the final comfort letter, subject to the understanding that the comments in the final comfort letter cannot be determined until the procedures underlying it have been performed.  It shall clearly describe that the procedures to be performed by the auditor are those specified by the requesting parties, and that the requesting parties above are responsible for the sufficiency of the procedures for their purposes. (Ref: Para. A16-A17)

If the auditor is unable to have a discussion with the requesting parties about the requesting parties' required procedures for the auditor to perform at the time of preparing the draft comfort letter, the auditor shall either:

1. describe in the draft comfort letter those procedures specified in the draft underwriting agreement that the auditor is willing to perform; or
2. if the draft underwriting agreement is not available at the time of being requested to prepare the draft, the auditor is unable to agree to provide a draft comfort letter. (Ref: Para. A18)

In competitive bidding situations in which legal counsel for the requesting parties acts as the requesting parties’ representative prior to opening and acceptance of the bid, the auditor shall carry out the discussions and other communications required by this ASRS with the legal counsel until the requesting parties are selected.  In such circumstances, the auditor shall not agree to provide a comfort letter addressed to the entity, legal counsel, or a non-specific addressee such as any or all underwriters to be selected.  If the auditor agrees to provide a draft comfort letter, the draft comfort letter shall include a legend describing the comfort letter’s purpose and limitations.
(Ref: Para. A19)

Changes in the Terms of Providing the Comfort Letter

The auditor shall not agree to a change in the scope of services agreed to in the engagement letter if there is no reasonable justification for doing so. (Ref: Para. A20)

If the terms of providing the comfort letter are agreed to be changed, the terms shall be documented in writing and co-signed by the auditor, the responsible party of the entity and the requesting parties. (Ref: Para. A21)

If the terms of providing the comfort letter are unable to be agreed by the auditor, the auditor shall withdraw from the engagement and not agree to issue the comfort letter.

(Ref: Para. A22)

The auditor shall perform the requesting parties’ specified procedures as agreed in the engagement letter.

General

If the auditor is required to comment in a comfort letter on financial information other than audited financial statements, the auditor shall: (Ref: Para. A23)

1. describe the procedures specified by the requesting parties to be performed by the auditor;
2. describe the applicable criteria specified by the requesting parties; and
3. state that the procedures performed with respect to interim financial reporting periods may not disclose matters of significance regarding the particular financial information about which the auditor's statement is requested.

The auditor shall not in the comfort letter:

1. make any statements that the auditor has applied procedures that the auditor determined to be necessary or sufficient for the requesting parties' purposes;
2. use terms of uncertain meaning (such as general review, limited review, reconcile, check, or test) in describing the work performed unless the procedures encompassed by these terms are described in the comfort letter; or
3. make a statement that nothing else has come to the auditor's attention that would be of interest to the requesting parties as a result of carrying out the specified procedures. (Ref: Para. A24-A25)

When an auditor’s report on audited financial statements or a review report on reviewed financial statements in the offering document includes a modified opinion or conclusion, the auditor shall consider the effect on the comfort letter regarding subsequent interim financial information included in the offering document or regarding an absence of specified subsequent changes. (Ref: Para. A26)

Knowledge of Internal Control (Ref: Para. A27)

The auditor shall obtain an understanding of the entity's internal control over financial reporting of both year-end and interim periods when commenting in a comfort letter on:

1. unaudited interim financial information; and/or
2. subsequent changes in selected financial statement items.

Unaudited Interim Financial Information

The auditor may only provide limited assurance on interim financial information included in the offering document if the auditor has, as agreed to under a separate engagement, conducted a review in accordance with the applicable Australian Standard on Review Engagements.  If included in the agreed terms of the comfort letter engagement, the auditor may attach a copy of the review report to the comfort letter unless it is already included in the offering document, or is otherwise publicly available. (Ref: Para. A28)

When unaudited interim financial information has been included in the offering document with respect to a period that has not been audited or reviewed, the auditor is not able to provide an auditor's statement on the interim financial information. The auditor may alternatively agree to perform procedures on the interim financial information, provided it:

1. has been prepared using an applicable financial reporting framework that is consistent with that used in the most recent audited or reviewed financial statements; and
2. is disclosed as being unaudited or unreviewed by the auditor; and report results in the comfort letter based on the procedures specified by the requesting parties.

Pro Forma Historical Financial Information

If the auditor is required to comment on pro forma historical financial information, the auditor shall not provide such a comment unless the auditor has an appropriate level of knowledge of the accounting and financial reporting practices of the entity. (Ref: Para. A29)

The auditor shall not provide an auditor's statement in a comfort letter with respect to: (Ref: Para. A30)

1. the application of pro forma adjustments to historical financial information amounts;
2. the compilation of any pro forma historical financial information; or
3. whether the pro forma historical financial information has been prepared in all material respects in accordance with the applicable financial reporting framework chosen by the responsible party of the entity;

unless the auditor has obtained the required knowledge described in paragraph 29 of this ASRS and has performed, in respect of the historical financial statements to which the pro forma adjustments are applied, either an audit in accordance with applicable Australian Auditing Standards, or a review in accordance with the applicable Standard on Review Engagements. If the auditor has not performed such an audit or review, the auditor shall only report results in the comfort letter based on the procedures specified by the requesting parties.

If the auditor is requested by the requesting parties to provide limited assurance on pro forma historical financial information included in the offering document, the auditor shall only agree to such a request if:

1. this is conducted as a separate engagement to the comfort letter engagement; and
2. it is performed in accordance with the applicable AUASB Standard.

Financial Forecasts (Ref: Para. A31)

The auditor shall not agree, as part of a comfort letter engagement, to perform procedures specified by the requesting parties in relation to a financial forecast.

Tables, Statistics, and Other Financial Information

The auditor may be requested to perform procedures specified by the requesting parties and report results on tables, statistics and other financial information. If the auditor is requested to comment in a comfort letter on tables, statistics and other financial information appearing in the offering document, the auditor shall comment only on information that: (Ref: Para. A32)

1. is expressed in dollars (or percentages or ratios derived from such dollar amounts) and that has been obtained from accounting records that are subject to internal control over financial reporting; or
2. has been derived directly from such accounting records by analysis or computation.

The auditor shall not comment in a comfort letter:

1. on quantitative information that has been obtained from accounting records unless the information is subject to the same controls over financial reporting as the dollar amounts; or
2. on tables, statistics, and other financial information relating to an unaudited period unless the auditor has:
   1. performed an audit of the entity's financial statements for a period including, or immediately prior to, the unaudited period, or completed an audit for a later period, or
   2. otherwise obtained knowledge of the entity's internal control over financial reporting for that period.

The auditor shall not use the terms “presents fairly” or “true and fair” in comments concerning tables, statistics, and other financial information and shall not comment on: (Ref: Para. A33)

1. information subject to legal interpretation, such as beneficial share ownership; or
2. matter(s) merely because the auditor is capable of reading, counting, measuring or performing other functions that might be applicable.

The auditor's reporting of results from the performance of the procedures in the comfort letter concerning tables, statistics, and other financial information included in the offering document shall include: (Ref: Para. A34)

1. a clear identification of the specific information commented on;
2. a description of the procedures performed; and
3. the results, expressed in terms of agreement between items compared.

With respect to the acceptability of methods of allocation used in deriving the figures commented on, the auditor shall comment only to the extent to which such allocation is made in, or can be derived directly by, analysis or computation from the entity's accounting records. Such comments, if made, shall make clear that:

1. such allocations may be, to a substantial extent, arbitrary;
2. the method of allocation used is not the only acceptable method; and
3. other acceptable methods of allocation might produce significantly different results.

The comfort letter shall state that the auditor makes no representations regarding:

1. any matter of legal interpretation;
2. the completeness or adequacy of disclosure; and
3. the adequacy of the procedures followed, and that such procedures would not necessarily identify material misstatements or omissions in the financial information to which the comments relate.

Change Period Financial Information

If agreed to under the terms of the engagement, the auditor shall perform the procedures specified by the requesting parties on financial information during the change period, in order to provide an auditor’s statement on such financial information in the comfort letter. (Ref: Para. A35)

The auditor shall base the auditor’s statement regarding any subsequent changes in the change period financial information solely on the procedures performed with respect to the change period. (Ref: Para. A36)

The auditor shall provide an auditor’s statement in the comfort letter regarding subsequent changes in the change period financial information only as of a date less than the date specified in paragraph 10(f) of this ASRS. (Ref: Para. A37)

When the requesting parties request an auditor’s statement regarding subsequent changes in specified financial information as of a date after the date specified in paragraph 10(f) of this ASRS, the auditor is not permitted to include an auditor’s statement in the comfort letter and is restricted to reporting on the results based on the procedures specified by the requesting parties.

In commenting on subsequent changes, the auditor shall not characterise subsequent changes using ambiguous terms, such as referring to a change as adverse. (Ref: Para. A38)

The auditor shall comment only on the occurrence of subsequent changes in the change period financial information that are not disclosed in the offering document.  Accordingly, the auditor shall include the statement “except for changes, increases, or decreases that the offering document discloses have occurred or may occur” in the comfort letter when it has come to the auditor’s attention that a change, increase, or decrease has occurred during the change period, and the amount of such change, increase, or decrease is disclosed in the offering document.  This statement need not be included in the comfort letter when there are no changes, increases, or decreases in the change period financial information or if they are already disclosed in the offering document. (Ref: Para. A38)

The auditor shall comment in the comfort letter if as a result of the procedures performed, the auditor identifies there has been a change in the application of the applicable financial reporting framework to the change period financial information such that the financial information is not prepared on a basis consistent with the latest audited or reviewed financial statements. (Ref: Para. A39)

The auditor shall identify in the comfort letter the dates as of which, and periods for which, data at the cut-off date and data for the change period are to be compared. (Ref: Para. A40-A42)

If the requesting parties request the use of an earlier change period or change periods other than that defined in paragraph 10(f) of this ASRS, the auditor shall explain to the requesting parties the implications of using an earlier date.  If the requesting parties, nonetheless, request the use of a change period or periods other than that defined in paragraph 10(f) of this ASRS, the auditor is permitted to use the change period or periods requested. (Ref: Para. A43)

If the auditor is unable to perform the exact nature, timing or extent of the requesting parties’ specified procedures, the auditor shall discuss this as soon as possible with the requesting parties.  If alternative procedures are requested by the requesting parties, then these new procedures shall be agreed between the auditor and the requesting parties, and documented in writing and co-signed by the auditor and the requesting parties.

If the terms of engagement include the auditor preparing a bring down comfort letter, to be dated at or shortly before the closing date of the offering, the auditor shall carry out the specified procedures set out in the engagement letter and make enquiries of the entity as of the cut-off date for the bring down comfort letter.  The subsequent bring down comfort letter shall relate only to financial information in the offering document as most recently amended.

(Ref: Para. A44-A45)

The auditor shall request a written representation letter from the entity‟s Chief Executive Officer and Chief Financial Officer^[6] that includes the following representations, at a minimum:

1. a reaffirmation of the representations previously provided in the most recent audit or review of the entity's financial statements;
2. that all information requested by the auditor has been provided, including the final version of the offering document;
3. that all matters relevant to the comfort letter have been advised to the auditor;
4. an acceptance of responsibility for the offering document, including that it complies with the applicable legal requirements of all jurisdiction(s) in which it will be, or is, issued;
5. that all financial information that is the subject of the comfort letter has:
   1. been derived from the same accounting records and subject to the same internal control as the most recent audited or reviewed financial statements;
   2. a reasonable basis of preparation, and is prepared in accordance with the applicable financial reporting framework chosen by the responsible party of the entity; and
   3. been prepared on a basis consistent with that of the most recent audited or reviewed financial statements; or if not, that appropriate disclosure of any changes has been made to the financial information in the offering document; and
6. such other representations that the auditor determines are appropriate in the engagement circumstances.

The date of the representation letter shall be either the cut-off date of the offering document, or as near as practicable to, but not after, the date of the comfort letter.

If the required representations set out in paragraph 53 of this ASRS are not received, the auditor shall not issue the comfort letter.

The auditor shall determine if all the requesting parties’ specified procedures have been completed in order to prepare the comfort letter.

The auditor shall request a copy of the signed underwriting agreement from the requesting parties.

The auditor shall agree to provide a comfort letter to the requesting parties only if the auditor has received a signed copy of the underwriting agreement.

(Ref: Para. A46)

The auditor shall inform the requesting parties as soon as possible when the auditor has discovered matters, as a result of the procedures performed by the auditor, not included in the offering document, that require inclusion in the final comfort letter and that were not previously included in the draft comfort letter provided to the requesting parties.  If the responsible party of the entity decides not to amend the offering document, the auditor shall inform the responsible party of the entity that the matters will be included in the final comfort letter.

The auditor‟s comfort letter shall include, at a minimum, each of the following elements: (Ref: Para. A50)

1. addressees, being only the responsible party of the entity and the requesting parties;
2. the date of issue, being the date the auditor signs the comfort letter; (Ref: Para. A47-A49)
3. identification of the offering document to which the comfort letter relates;
4. the purpose of the comfort letter and that it has been prepared in accordance with this ASRS and the engagement letter;
5. the specified procedures requested by the requesting parties which have been performed by the auditor on each type of financial information in order to report factual findings, and that no assurance is expressed on that financial information;
6. a statement that the auditor is not responsible for the sufficiency of the procedures performed;
7. the results of the procedures;
8. if applicable, for the change period financial information:
   1. the change period financial information;
   2. the applicable cut-off period, as well as the dates and periods of comparison for the cut-off period financial information; (Ref: Para. A47)
   3. the procedures performed and that they did not cover the period from the cut-off date to the date of the comfort letter; (Ref: Para. A47)
   4. the auditor's statement as to whether, based on the procedures described, nothing has come to the auditor's attention that there are any changes, increases or decreases in the change period financial information, as compared to the corresponding period:
      • if there are such changes, increases or decreases, that are actual or contemplated, disclosed in the offering document, the auditor's statement states that “except for changes, increases or decreases disclosed in the offering document as having occurred or which may occur”; or
      • if the changes are not disclosed in the offering document, the auditor's statement shall include the amount of the changes, increases or decreases in the selected financial information during the change period;
   5. the auditor's statement that no audit or review was performed on the change period financial information, and accordingly no assurance is expressed on that financial information; and
   6. a statement that the auditor is not responsible for updating the comfort letter for events and circumstances occurring after the cut-off date.
9. confirmation that the use of the comfort letter is restricted to its addressees and is prepared for the sole purpose of assisting the requesting parties in their due diligence defence of the offering document, and consequently is to be used only in connection with the stated purpose of the comfort letter. Consequently the auditor is not responsible for any reliance that may be placed on the comfort letter for any other purpose;
10. the auditor's firm name; and
11. the auditor's address.

If the auditor is required by law or regulation to use a specific layout and/or wording in the comfort letter, the auditor shall refer to compliance with this ASRS only if the comfort letter includes, at a minimum, each of the elements identified in paragraph 60 of this ASRS.

When issuing a comfort letter in accordance with this ASRS, the auditor shall not circumvent the intent of this ASRS by issuing any additional letters or reports to requesting parties in connection with the offering document in which the auditor comments on items for which commenting is otherwise precluded by this ASRS.

The auditor shall not refer to in, or attach to, the comfort letter any restricted use reports.

If the auditor does not receive the requested signed representation letter containing a confirmation that the requesting parties have a due diligence defence as required in paragraph 14(e)(v) of this ASRS, the auditor shall not agree to issue the comfort letter to the requesting parties.

If the agreed terms of engagement require the auditor to issue a letter subsequent to the comfort letter in order to report procedures performed on financial information for a new change period, the auditor shall perform the new change period procedures specified by the requesting parties. (Ref: Para. A51)

The auditor shall request an updated written representation letter from the entity’s Chief Executive Officer and Chief Financial Officer, containing such representations that the auditor determines are appropriate in the engagement circumstances.

The date of the updated representation letter shall be either the cut-off date of the offering document or as near as practical to, but not after, the date of the bring down comfort letter.

If the required representations set out in paragraph 66 of this ASRS are not received, the auditor shall not issue the comfort letter.

The auditor shall provide a written bring down comfort letter to the requesting parties including a clear expression of the results of the auditor’s procedures on the change period financial information. (Ref: Para A51)

Basic Elements of the Bring Down Comfort Letter (Ref: Para. A52)

The bring down comfort letter shall include, at a minimum, each of the following elements:

1. date issued;
2. addressees;
3. a reference to the previously issued comfort letter and the purpose of the bring down comfort letter;
4. a statement as to whether the auditor reaffirms the statements previously included in the comfort letter;
5. details of the updated procedures specified by the requesting parties and performed by the auditor, including when the procedures were performed, and the change period subsequent to the date of the comfort letter to which the procedures relate; and
6. a statement that the bring down comfort letter is restricted to the addressees and is to be used only in connection with the stated purpose of the letter.

The auditor shall document on a timely basis:

1. the nature, timing and extent of the procedures performed by the auditor as specified by the requesting parties and the results obtained, as identified in the comfort letter; and
2. evidence that the procedures were carried out in accordance with this ASRS and the agreed terms of engagement.