A.

5
a)
i. The failure to include all the cases in the confirmation depicts that the legal advisor has not
replied appropriately to the general enquiry letter. In this case:
 The auditor may directly communicate with the legal advisor (after client permission) through a
letter of specific enquiry, which shall include the following:
- Details of litigation for which the auditor needs to obtain information.
- Management’s assessment of the outcome of the identified litigation and its financial
implications.
- A request for confirming the reasonableness of management’s assessment and providing
further information if the details of case or management’s assessment is incorrect.
ii. The auditor’s course of action would depend upon the reply to the specific enquiry, and the
auditor will proceed in the matter, as follows:

Legal Advisor confirms the viewpoint of management:

If the legal advisor confirms that he has not included the said case in his confirmation due to the
reasons that the management is in negotiation phase with the competitor and confirms the amount
of loss estimated by the management, it will confirm the viewpoint of management.

Legal Advisor confirms the view point of management but does not agree with the amount
provided in the financial statements:
If the legal advisor confirms the viewpoint of management, but disagrees with the management
relating to the amount of settlement, then the auditor will ask the management to resolve the
matter. In both the above cases, the auditor will:
- review the legal files of the cases to confirm the lawyer’s point of view regarding the
outcome of the case
- seek management representation that there are no other undisclosed pending cases.
If the matter cannot be resolved or the management fails to make appropriate adjustments in the
financial statements, the auditor would consider the impact on the audit report and modify the
report accordingly.
Legal Advisor negates the viewpoint of management:
- If the legal advisor does not confirm the information provided by the management or
expresses that he does not have any knowledge of the said case, then it will raise
concerns with regard to the integrity of management.
- As it is a significant matter therefore the auditor may contact the legal advisor of the
company, to address the matter.
- The auditor will also communicate the matter to those charged with governance and
asked them to address the situation and determine whether it is possible to perform
alternate audit procedures to obtain audit evidence.
- The auditor will determine the professional and legal responsibilities applicable in the
circumstances, including whether there is a requirement for the auditor to report to the
persons who made the audit appointment or to regulatory authorities.
- If those charged with governance donot take corrective measures or auditor is unable to
obtain audit evidence from alternative procedures, and as the matter relates to the

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