Audit ProceduresAudit Procedures

Audit Procedures

8 To identify legal matters affecting the entity, the auditor ordinarily performs the following procedures:

• reviews and discusses with management the procedures within the entity’s internal control structure for identifying and recording legal matters and bringing them to the attention of management;
• reviews and discusses with management the procedures within the entity’s internal control structure for the identification, control and recording of legal expenses and associated revenues and expenses in appropriate accounts;
• obtains and discusses with management:

(i) a list of legal matters, including a description of the matters and an estimate of their likely financial consequences; and

(ii) an analysis identifying legal expenses;

• reviews relevant documents, for example correspondence with the entity’s lawyers; and
• obtains from management an assurance that the information obtained regarding material outstanding legal matters is complete.

9 Audit procedures that are undertaken for different purposes might also disclose legal matters. Such procedures include:

• examining contracts, loan agreements, leases, insurance policies and claims, and other correspondence;
• reading minutes of meetings of the governing body, the audit committee, shareholders and appropriate committees;
• obtaining information concerning guarantees from bank confirmations;
• developing a knowledge of the essential characteristics of the entity’'s business operations, including an understanding of the potential involvement in legal matters; and
• enquiries of management and other employees of the entity.

10 The procedures outlined in paragraphs 8 and 9 of this Auditing Standard are methods whereby the auditor can identify both material legal matters and the lawyers who have been consulted by the entity. However, these procedures may not necessarily provide the auditor with sufficient appropriate audit evidence concerning the likely outcome of legal matters, or indicate whether the information provided by management is complete. Furthermore, the auditor ordinarily does not possess the skills necessary and is not in a position to make legal judgements concerning the likely outcome of legal matters.