ASA 502 - Audit Evidence - Specific Considerations for Litigation and Claims - October 2009
Communication with the Entity’s Legal CoCommunication with the Entity’s Legal Counsel
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Communication with the Entity’s Legal Counsel
External Legal Counsel
- If the auditor assesses a risk of material misstatement regarding litigation or claims that have been identified, or when audit procedures performed indicate that other material litigation or claims may exist, the auditor shall endeavour to, in addition to the procedures required by other Australian Auditing Standards, seek direct communication with the entity’s external legal counsel. The auditor shall do so through a letter of enquiry, prepared by management and sent by the auditor, requesting the entity’s external legal counsel to communicate directly with the auditor. If law, regulation or the respective legal professional body prohibits the entity’s external legal counsel from communicating directly with the auditor, the auditor shall perform alternative audit procedures. (Ref: Para. A5‑A8)
In‑house and/or External Legal Counsel
Aus 5.1 Where in‑house legal counsel has the primary responsibility for litigation and claims and is in the best position to corroborate management’s representations, the auditor shall endeavour to obtain a representation letter from the in‑house legal counsel, seeking information similar to that sought from the entity’s external legal counsel. (Ref: Para. Aus A8.1‑Aus A8.2)
Legal Counsel’s Response
Aus 5.2 If a response from the entity’s external or internal legal counsel contains a material disagreement with management’s original evaluation of a particular matter, the auditor shall seek discussions with management and the entity’s legal counsel, unless management subsequently agrees with the legal counsel’s evaluation.
(Ref. Para. Aus A8.3-Aus A8.6)
- If:
- management refuses to give the auditor permission to communicate or meet with the entity’s external legal counsel, or the entity’s external legal counsel refuses to respond appropriately to the letter of enquiry, or is prohibited from responding; and (Ref: Para. Aus A8.7‑Aus A8.8)
- the auditor is unable to obtain sufficient appropriate audit evidence by performing alternative audit procedures, (Ref: Para. Aus A8.9‑Aus A8.10)
the auditor shall modify the opinion in the auditor’s report in accordance with ASA 705 Modifications to the Opinion in the Independent Auditor’s Report. (Ref: Para. Aus A8.11)