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Series 79 practice questionmediumIPO Process

In the context of an IPO, what is the purpose of a 'comfort letter'?

  1. ATo confirm that the company's board has approved the offering
  2. BTo certify that all state blue sky filings have been completed
  3. CTo guarantee that the underwriters will purchase all shares offered
  4. DAuditor assurance on financial information in the registration statement✓ Correct answer
Explanation

Why D — Auditor assurance on financial information in the registration statement

A comfort letter is issued by the company's independent auditors to the underwriters, providing negative assurance that certain financial data in the registration statement is accurate and that no material changes have occurred since the last audited period. This letter is a key component of the due diligence process and helps underwriters establish a due diligence defense under Section 11 of the Securities Act. Comfort letters are typically delivered at signing and again at closing.

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