INQUIRIES OF CLIENT’S LEGAL COUNSEL

1. The auditor is required to communicate directly with a client’s attorney about liabilities arising

from litigations, claims, and assessments

2. A list of legal issues should be prepared by the client’s management, rather than the client’s

attorney. This information is sent by the auditor to the auditor to the attorney, requesting

information about:

a. Pending or threatened litigation, claims, and assessments

b. Unasserted claims and assessments

3. The client should request the attorney to furnish the following information for all pending or

threatened litigation, claims, and assessments, and to comment on differences between the

attorney’s and management’s views:

a. A description of the nature of the matter, progress to date, and action that client

intends to take

b. An evaluation of the likelihood of an unfavorable outcome and an estimate, if one

can be made, of the amount or range of potential loss

41c. A statement that management’s list of pending or threatened claims is complete, or

identification of any omissions

4. The attorney’s refusal to reply to the audit inquiry is a SCOPE LIMITATION that may affect the

audit report

5. In the case of unasserted claims which the client has not disclosed, the lawyer is not required to

note them in his or her reply to the auditor. However, the lawyer is generally required to inform

the client of the omission and to consider withdrawing if the client fails to inform the auditor

MANAGEMENT REPRESENTATION LETTER

(BASED ON PSA 560 – MANAGEMENT REPRESENTATIONS)

1. The representation letter

a. Confirms the oral representations given by management to the auditor and reduces

the possibility of misunderstanding between the client and the auditor

b. Reminds management of its primary responsibility for the financial statements

c. Addressed to the auditor

d. Dated as of the audit report date

e. Signed by the CEO and the CFO

f. Not a substitute for the application of other necessary auditing procedures

2. If management refuses to provide a representation that the auditor considers necessary, this

constitutes a scope limitation and the auditor should express a qualified opinion or a disclaimer

of opinion

3. Written representations requested from management may be limited to matters that are

considered either individually or collectively material to the financial statements