Question

Which of the following is typically the auditors' initial procedure performed to identify litigation, claims, and assessments?

1) Perform analytical procedures.
2) Confirm litigation, claims, and assessments with third-party litigants.
3) Obtain an attorney letter from the entity's legal counsel.
4) Inquire of the entity regarding the existence of litigation, claims, and assessments.

Answer 1

Auditors typically start with an inquiry of the entity to identify any litigation, claims, and assessments before moving to other procedures like obtaining attorney letters.

Step-by-step explanation:

The initial procedure typically performed by auditors to identify litigation, claims, and assessments is to inquire of the entity regarding the existence of litigation, claims, and assessments. This step involves asking management and, where appropriate, others within the entity, about the potential for litigation or claims. Further procedures such as obtaining an attorney letter from the entity's legal counsel, performing analytical procedures, and confirming litigation with third-party litigants may follow this initial inquiry.