KEEP-WELL AGREEMENTS Definition

Bookmark and Share

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

CHECKING ACCOUNT is an account at a bank or savings and loan from which an individual can withdraw money by check, ATM card or debit card.

COMPANY LIMITED BY GUARANTEE is where the liabilities of the members will be restricted to the amount each agrees to contribute to the assets of the company in the event of dissolution or liquidation.

Suggest a Term

Enter Search Term

Enter a term, then click the entry you would like to view.