Litigation, claims, and assessments Discuss the information management should provide related to litigation, claims and assessments. Also describe the purpose of the letter of audit inquiry, who writes it, who it is addressed to, and the important inquiries that are made of the client's lawyer in the letter of audit inquiry

Answer 1

Management is the primary source of information concerning litigation, claims and assessments and should provide the auditor with a description and evaluation of litigation, claims and assessments against them and assurance that the accounting and disclosure requirements under SFAS No. 5 have been met. A level of materiality should be agreed to between the client and the auditor.
To corroborate the information provided by management, other sources of information used by the auditor include correspondence and invoices from the lawyers, corporate minutes, contracts, and bank confirmations. The letter of audit inquiry though, written by the client to their chief legal counsel, is the primary source of corroborative evidence concerning the litigations, claims and assessments against the client. Because of the privileged relationship between the client and the lawyer, the client has to request any information from the lawyer.The lawyer is requested to comment on the completeness of management's list and to describe the nature, progress, and likelihood and range of possible losses of those cases that they have devoted substantial time to and to respond directly to the auditor. The lawyer should also indicate any limitations in the response. A lawyer's refusal to respond adequately is a scope limitation on the audit that would preclude an unqualified opinion, but an inability to evaluate likelihood and range of loss because of inherent uncertainties is not considered a scope limitation.