A SAS 72 letter, also known as an auditor representation letter, is delivered by a company’s underwriters to the company’s auditors in connection with an unregistered offering of equity or debt securities. For example, a SAS 72 letter may be issued in connection with a Rule 144A private placement of equity securities to certain qualified institutional and accredited investors.

These SAS 72 representation letters often follow a standard form and contain similar content. It is usually just 1-2 pages in length. The requirements for the SAS 72 letter are governed by Auditing Standards No. 6101 (AS 6101), which are professional accounting standards issued by the U.S. Public Company Accounting Oversight Board (PCAOB). AS 6101 provides sample comfort letters to guide auditors about the appropriate language to use. AS 6101 superseded the earlier standards under AU Section 634. The name comes from the Statement on Auditing Standards No. 72, which was the initial set of auditing standards that governed these representation letters.

The SAS 72 letter is addressed only to the company’s auditors and it is signed by the banks serving as underwriters in the securities offering. It will include a statement that the letter is being delivered only in connection with the unregistered securities offering covered by the relevant offering memorandum or other offering document. It will also include a disclaimer that the SAS 72 letter is not to be used for any other purpose and should not be relied upon by any other person.

The letter will include a statement that the underwriters performed a due diligence review process that would have been “substantially consistent” to the due diligence review process for a securities offering registered under the Securities Act of 1933. The SAS 72 letter will request that the auditors deliver a comfort letter to the underwriters concerning the company’s financial statements and certain statistical data included in the offering memorandum.

A comfort letter provides assurance about the accuracy of the company’s financial information. The receipt of a comfort letter by the underwriters reduces their risks for incorrect financial information. The comfort letter delivered by the auditing firm must comply with PCAOB standards. Comfort letters provide protection from liability under Rule 10b-5 of the Securities Exchange Act of 1934. The antifraud provisions of Rule 10b-5 create liability in connection with materially misleading statements or omissions in an offering document that were intended to deceive or defraud a person.

There are several levels of comfort provided in an auditor comfort letter. The audited financial statements will receive the highest level of assurance. Meanwhile, the comfort the auditors can provide on unaudited financial information is more limited. Furthermore, the auditors can only provide limited comfort on numbers prepared by a company’s based on data from its own accounting records. A “circle-up” of the offering document will be attached to the comfort letter with tick marks indicating what level of comfort the auditors were able to provide on particular financial numbers. This is sometimes referred to as “tick-as-tie” comfort. A tick mark letter or symbol will be placed next to each circled item in the offering document representing the level of comfort.