Audit Inquiries
MCLE
Corporate Practice for the Paralegal
March 4, 2008
The Role of Audit Inquiries in Preparation of Financial
Statements
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Audited Financial Statements
Loss Contingencies: FAS 5
Auditing Standards: SAS 12
Conflict with the lawyer’s duty not to disclose
confidential client information without consent
 The ABA Statement of Policy
 The Treaty: established uniform standards
reconciling the obligations of auditors and attorneys
 Sarbanes Oxley Act of 2002
Recommended Policy for Responding
 Adhere to the ABA Statement of Policy
 State that the response is in conformity with the ABA
Policy
 Require a written request by client
 Respond only in writing and provide only the types of
information contemplated by the ABA Policy
 Develop model forms and procedures and use them
 Designate lawyers with expertise as reviewers
Procedures
 Analyze letter from client
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Companies covered
Fiscal period to be covered
Materiality threshold, if any
Request for confirmation regarding consultation with
the client regarding unasserted possible claims
 Deadline for response
 Requests regarding outstanding bills, unbilled time
and disbursements
Procedures (continued)
 Information requested
 Overtly threatened or pending litigation
 Identify pending cases
 Brief description of nature of litigation
 Client position
 Procedural status
 Avoid judgments as to outcome
Procedures (continued)
 Assembling information
 Identify client files
 Identify attorneys and solicit information from them
 Determine effective date of response.
 Internal memorandum, 100% response needed
 Obtain and review descriptions of loss
contingencies
 Gather information on status of client’s account
The Audit Response Letter
 Use master form wherever possible. It’s an opinion
letter
 Paralegal role may include preparation of a draft,
including descriptions of loss contingencies
provided by attorneys, and then submitting the draft
for review by the responsible partner and/or
reviewing attorney
Updates
 Client request
 Same procedures
 Develop model response for update
Some Common Mistakes
 Failure to include the names of all companies when
searching for files
 Failure to include entire period covered by the audit
in determining which attorneys needed to be
contacted
 Omitting lawyers from the distribution list for the
internal memorandum
 Marking up the prior year’s response rather than
using the current master form
Common Mistakes (continued)
 Addressing the response letter to an individual
rather than the audit firm
 Failing to clarify what companies are covered by the
response letter
 Omitting either paragraph 5, or if requested in the
inquiry letter, paragraph 7 of the K&L Gates Master
Form
 Specifying an “effective date” later than the “as of”
date furnished by your Accounting Department
 Omitting any reference to any materiality threshold
included in the inquiry letter.
Common Mistakes (continued)
 Failing to get responses from all attorneys
 Failure to include all loss contingencies reported by
the attorneys
 Failure to review or edit descriptions of loss
contingencies for compliance with the ABA
Statement of Policy