Deficiency Letter
You thought you had good grades, but when you got your report card, your teachers had opinions adverse to yours. They sent your parents a deficiency letter. You know, the one with all those “D”s on it.
Well, when it’s a company’s audit that has similarly gone, uh…awry, then it means that they didn’t count the beans properly when they gave their financial reports to their investors, or whoever the auditors were serving.
Usually, this implies that companies overstated how profitable they really were, or how well they were really doing, so tens of thousands of investors, if the company was public when this happened, paid $27.32 a share...when with the real numbers, the stock probably should have been trading at more like $14.27 a share.
Basically, an auditor is saying that yours are not bread-and-butter misstatements. No “oops.” It’s more of a “dude, there were material, i.e. important, mistakes, and they were pervasive. Like…everywhere. Math, Science, English, History; your failure is no mystery.”
Then there are massive losses to massive numbers of people who hire massive numbers of lawyers who sue you…massively. In the world of finance, an adverse audit opinion is a bit like running over everyone’s favorite dog. Several times.
Only you're the one who is likely dead meat.
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Finance: What is a Comfort Letter?6 Views
Finance a la shmoop what is a comfort letter? S....See the smooth curves there is [An S letter appears]
that comforting okay okay comfort letter is a letter
this kind of letter written by an expert usually someone like an auditor or a tax [Expert appears with comfort letter]
attorney in one form or another who has done deep due diligence into a company
looked at myriad details and data and volume counts of plastic cubes in their
inventory and then they've looked at their distribution contracts
you know with truckers and retail stores and drone deliverers and then they've [Drone flying in the air]
looked at their bank accounts both the onshore ones and the offshore ones that
you know they don't really like to talk about and then about 87 ish other things
that all those people look at and then they write a letter like an actual
letter which is usually given to the Board of Directors or an acquirer or
the investigating party whoever that is and that letter states that what the
company says it has or does is in fact what it has or does which is a good [Man discussing comfort letters]
thing to know so this letter well it just gives comfort to everyone
the only challenge can be you know trying not to become too comfortable [Man working near a waterfall]
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