what is an attorney inquiry letter in audit

A letter of audit inquiry to the client's lawyer is the auditor's primary means of obtaining corroboration of the information furnished by management concerning litigation, claims, and assessments. fn 5 Evidential matter obtained from the client's inside general counsel or legal department may provide the auditor with the necessary corroboration.

Full Answer

Can the Auditor request a letter of inquiry from a lawyer?

Accordingly, the auditor should request the client's management to send a letter of inquiry to those lawyers with whom management consulted concerning litigation, claims, and assessments.

What is an attorney's letter in auditing?

The attorney's letter makes up a significant part of the financial audit process. When auditors are conducting a review of a company's financials, they need to take into consideration any litigation that may have a negative impact on the financials. Therefore, they need a full account of any pending lawsuits the company faces.

What is the inquiry of a client's lawyer?

Statement of Auditing Standard No. 12, 'Inquiry of a Client's Lawyer,' lays out the procedures for dealing with lawyers' letters. Normally, inquiries are sent only to lawyers who have given considerable attention to an issue in their capacity as a client's legal consultants or representatives.

When should an audit inquiry not be made?

Inquiry need not be made concerning matters that are not considered material, provided the client and the auditor have reached an understanding on the limits of materiality for this purpose.

What is the purpose of an attorney letter?

An attorney's letter is a formal business letter sent by a certified public accountant (CPA) to a client's attorney. The attorney's letter verifies the information sent by the management of a company pertaining to pending litigation of the company.

Who sends the letter of audit inquiry to the client's lawyers?

the auditorAccordingly, the auditor should request the client's management to send a letter of inquiry to those lawyers with whom management consulted concerning litigation, claims, and assessments. .

What is an audit inquiry?

In an audit, inquiry refers to the process of asking clients for an explanation regarding anything. When an audit engagement begins, the company being audited agrees to provide auditors with the right to obtain information that is relevant to the preparation of the financial statements or the purpose of the audit.

Are legal letters required for audit?

The legal representation letter provided to the auditor by the legal department of the Federal reporting entity requires an assertion as to the completeness of the list of litigation, claims and assessments, including matters handled by DOJ or other outside legal counsel on behalf of the Federal reporting entity.

What information is typically requested in a legal letter to an entity's attorney?

What information is typically requested in a legal letter to an entity's attorney? A list and evaluation of any pending or threatened litigation to which the attorney has devoted substantial attention.

What is a representation letter and what is its importance in an audit engagement?

A management representation letter is a form letter written by a company's external auditors, which is signed by senior company management. The letter attests to the accuracy of the financial statements that the company has submitted to the auditors for their analysis.

What are the 4 phases of an audit process?

Although every audit process is unique, the audit process is similar for most engagements and normally consists of four stages: Planning (sometimes called Survey or Preliminary Review), Fieldwork, Audit Report and Follow-up Review.

What is inquiry and confirmation in auditing?

Confirmation is similar to the inquiry as it is also the procedure of asking for the information. However, confirmation is usually done by asking the third party, instead of the client, to confirm transactions and balances. This type of audit procedures is usually done through formal written letters.

What are the 5 audit procedures?

Those five audit procedures include Analytical review, inquiry, observation, inspection, and recalculation.

What is a legal letter?

law, Crim. law. An epistle; a despatch; a written message, usually on paper, which is folded up and sealed, sent by one person to another. 2. A letter is always presumed to be sealed, unless the presumption be rebutted.

What is an audit letter?

Summary. An audit letter of representation is a form letter prepared by a company's service auditor and signed by a member of senior management. In the letter, management attests to the accuracy and completeness of the information provided to the service auditors for their analysis.

What is a counsel letter?

The letter usually claims that before filing a formal lawsuit, the lawyer would like to see if the matter can be resolved. Some letters are written like full legal briefs, setting out all the lawyer's arguments as to why the employee has a claim.

What is a letter of audit inquiry?

A letter of audit inquiry to the client's lawyer is the auditor's primary means of obtaining corroboration of the information furnished by management concerning litigation, claims, and assessments. fn 5 Evidential matter obtained from the client's inside general counsel or legal department may provide the auditor with the necessary corroboration. However, evidential matter obtained from inside counsel is not a substitute for information outside counsel refuses to furnish.

Who should send a letter of inquiry to?

Accordingly, the auditor should request the client's management to send a letter of inquiry to those lawyers with whom management consulted concerning litigation, claims, and assessments.

What should an independent auditor consider when performing an audit?

This section provides guidance on the procedures an independent auditor should consider for identifying litigation, claims, and assessments and for satisfying himself as to the financial accounting and reporting for such matters when he is performing an audit in accordance with generally accepted auditing standards.

What are the procedures of audit?

The audit normally includes certain other procedures undertaken for different purposes that might also disclose litigation, claims, and assessments. Examples of such procedures are as follows: 1 Reading minutes of meetings of stockholders, directors, and appropriate committees held during and subsequent to the period being audited. 2 Reading contracts, loan agreements, leases, and correspondence from taxing or other governmental agencies, and similar documents. 3 Obtaining information concerning guarantees from bank confirmation forms. 4 Inspecting other documents for possible guarantees by the client.

What is uncertainty in litigation?

The existence of a condition, situation, or set of circumstances indicating an uncertainty as to the possible loss to an entity arising from litigation, claims, and assessments .

What is a list of pending claims?

A list prepared by management (or a request by management that the lawyer prepare a list) that describes and evaluates pending or threatened litigation, claims, and assessments with respect to which the lawyer has been engaged and to which he has devoted substantive attention on behalf of the company in the form of legal consultation or representation.

What is the primary source of information about litigation, claims, and assessments?

Since the events or conditions that should be considered in the financial accounting for and reporting of litigation, claims, and assessments are matters within the direct knowledge and, often, control of management of an entity, management is the primary source of information about such matters. Accordingly, the independent auditor's procedures with respect to litigation, claims, and assessments should include the following:

What should an independent auditor include in its procedures?

Accordingly, the independent auditor's procedures with respect to litigation, claims, and assessments should include the following: Inquire of and discuss with management the policies and procedures adopted for identifying, evaluating, and accounting for litigation, claims, and assessments .

Why should a lawyer limit the use of a footnote in a reply letter?

Because the client's prospects in pending litigation may shift as a result of interim developments, and because the lawyer should have an opportunity, if quotation is to be made, to review the footnote in full , it would seem prudent to limit the use of the lawyer's reply letter. Paragraph 7 sets out such a limitation.

What is uncertainty in litigation?

The existence of a condition, situation, or set of circumstances indicating an uncertainty as to the possible loss to an entity arising from litigation, claims, and assessments .

What is a 05?

.05 Since the events or conditions that should be considered in the financial accounting for and reporting of litigation, claims, and assessments are matters within the direct knowledge and, often, control of management of an entity, management is the primary source of information about such matters. Accordingly, the independent auditor's procedures with respect to litigation, claims , and assessments should include the following:

Can an inquiry be made concerning matters that are not considered material?

Inquiry need not be made concerning matters that are not considered material , provided the client and the auditor have reached an understanding on the limits of materiality for this purpose.

Does a request letter give consent to a confidential disclosure?

In the normal case, the initial request letter does not provide the necessary consent to the disclosure of a confidence or secret or to the evaluation of a claim since that consent may only be given after full disclosure to the client of the legal consequences of such action.

Is a lawyer's response limited to matters that are considered individually or collectively material to the financial statements?

Also, a lawyer's response may be limited to matters that are considered individually or collectively material to the financial statements, provided the lawyer and auditor have reached an understanding on the limits of materiality for this purpose. Such limitations are not limitations on the scope of the audit.

What is an audit inquiry letter?

The accountant, in turn, sends you and/or your client an "audit inquiry letter" that asks you to describe any event that may affect your client's financial status, including pending and potential litigation. The most likely next step is for your client to send you a letter that simply requests that you respond.

What happens if you respond to an audit inquiry letter?

However, despite a split of authority, many courts hold that the response to the audit inquiry letter waives the attorney-client privilege and/or the work product doctrine. Thus, the response, drafts and underlying documentation could be discoverable by your client's adversary in litigation and/or your client's creditors. 2 In order to limit the potentially damaging impact that the disclosure of such sensitive information can have, you need to implore your client to take an active role and work in concert with you to carefully craft a reply that is at once forthcoming and at the same time preserves their rights.

What is the attorney-client privilege in bankruptcy?

8 You may assert either the attorney-client privilege or the work product doctrine to withhold producing the response and/or underlying documentation used in preparing the response to your client's litigation adversary or creditor who has requested its production. The attorney-client privilege provides that your client has the privilege to refuse to disclose, and to prevent any other person from disclosing, confidential communications between him/her and you that were made to facilitate your rendition of legal services. 9 The purpose of this privilege is to encourage "full and frank communication between attorneys and their clients." 10 The work product doctrine provides that any notes, working papers, memoranda or similar materials prepared by you in anticipation of litigation generally are protected from discovery. 11 While there is sparse pertinent case law, courts have held that the response to an audit inquiry letter may be a waiver of the attorney-client privilege and possibly a waiver of the protections of the work product doctrine.

What should be included in a retention agreement for an audited financial statement?

When your client retains an accountant to prepare the audited financial statements, they should include language in the retention agreement stating that the response to the audit inquiry letter cannot be quoted, filed with an agency or be provided to any private entity or persons. Your client should follow this up by confirming oral communications with the accountants who are actually working on the project. In addition, be sure to have your client review the financial statements and opinions of the accountant prior to it being filed to compare it with the response to the audit inquiry letter.

What is the letter of inquiry to a client's lawyer?

It provides that "a letter of audit inquiry to the client's lawyer is the auditor's primary means of obtaining corroboration of the information furnished by management concerning litigation, claims and assessments." Return to article

What is the next step in a letter?

The most likely next step is for your client to send you a letter that simply requests that you respond. Typically, this would be the extent of your client's involvement in this process because it has confidence that you can accurately describe the matters that you are handling, or have discussed potentially handling.

Can an audit letter waive attorney client privilege?

Until the circuit- level federal courts or the U.S. Supreme Court decide the issues conclusi vely, it is uncertain whether the response to an audit inquiry letter will waive the attorney-client privilege or the work product doctri ne. Thus, the best way to preserve your clients' rights is for them to take an active role in the preparation of the response instead of simply handing it off to you. Your client can be an integral component in limiting the items reported, constraining and carefully wording the descriptions of the items that are reported, making clear to the accountant the appropriate and inappropriate uses for the response, and in coordinating the responses of all of their attorneys to ensure that there is no duplication or conflicting discussions. Taking an active role in preparing the response will certainly make "that time of year" more stressful for your client, but that unpleasantness will be considerably less than that which they and you would feel should some sensitive information get into the wrong hands.

Why Lawyers Need the JPS

The auditor’s report on financial statements is a statutory requirement for many corporations. Auditing procedures may include communicating with the corporation’s lawyer who is regarded as uniquely qualified to comment on the claims that might affect the statement.

Frequently Asked Questions about the JPS

The FAQ document and flowchart were prepared to help the legal profession implement the JPS protocols in practice.

What Is An Attorney's Letter?

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