Locate the ABA policy statement which you can find as an Exhibit in both AU-C 501, "Audit Evidence - Specific Considerations for Selected Items," and in PCAOB AS 2505, "Inquiry of a Client's Lawyer Concerning Litigation, Claims, and Assessments." Review the ABA policy statement to answer these questions. What limitations exist as it relates to the attorney’s response? To what extent should
auditors rely solely on attorney responses to identify outstanding claims against audit clients?
What will be an ideal response?
The ABA policy notes the attorney’s response contains these limitations:
a. The response is limited to matters which have been given substantive attention by the lawyer in the
form of legal consultation and, where appropriate, involves legal representation since the beginning
of the period or periods being reported upon.
b. The attorney’s response only addresses legal services performed by the attorney’s firm since the
beginning of the fiscal period under audit related to overtly threatened or pending litigation,
whether or not specified by the client. The attorney’s firm has not performed a review of the
client’s transactions or other matters for the purpose of identifying other loss contingencies.
Paragraph A41 of AU-C Section 501 notes that management is responsible for adopting policies and
procedures to identify, evaluate, and account for litigation, claims, and assessments as a basis for the
preparation of financial statements in accordance with generally accepted accounting principles.
Paragraph A43 of AU-C Section 501 notes that the auditor normally performs the following procedures
in addition to obtaining the attorney’s response letter:
a. Reading minutes of meetings of stockholders, directors, and appropriate committees held during
and subsequent to the period being audited.
b. Reading contracts, loan agreements, leases, and correspondence from taxing or other governmental
agencies, and similar documents.
c. Obtaining information concerning guarantees from bank confirmations.
d. Inspecting other documents for possible guarantees by the client.
Paragraph A49 of AU-C Section 501 also notes that a letter of audit inquiry to the client’s attorney is
the auditor’s primary means of obtaining corroboration of the information furnished by management.
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In most states, eminent domain would permit taking of privately owned land for all the following purposes except:
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Select the true statement.
A. Legislation regulating marketing in many foreign countries is being eased. B. A government's attitude toward cooperation with importers has little impact on marketing to that country. C. Refusing to give payoffs and bribes in some foreign countries may put a marketer at a competitive disadvantage. D. Bribes and payoffs are considered unethical in all countries and cultures. E. Bribes and payoffs are supported by U.S. trade policies under certain conditions.