KEEP-WELL AGREEMENTS Definition

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KEEP-WELL AGREEMENTS, also known as comfort letters, are documents from one party written to another party in regards to contingent liability. Comfort letters have been held by courts to be legally enforceable commitments if they meet certain standards criteria of language. Comfort letters meeting these standards are loss contingencies in that they are construed to guarantee a financial commitment and must be reported under Statement of Financial Accounting Standard 5 as a guarantee. Auditors should review the language of all comfort letters and seek to discover contingent liabilities not disclosed in financial statements in situations where comfort letters exist. Sources of information concerning the contingent liabilities of comfort letters include: management and third parties. Auditors should document within the client representations letter management assurances that loss contingencies have been reported.

Learn new Accounting Terms

CFD see CONTRACT FOR DIFFERENCE.

PEP see PERSONAL EQUITY PLAN.

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