Final answer:
Auditors request a letter to the client’s attorney, known as a lawyer's letter or legal confirmation letter, to assess the risk of material misstatement from pending litigation. This helps auditors gather evidence about the litigation's impact on financial statements.
Step-by-step explanation:
When auditors assess the risk of material misstatement from pending litigation, they will typically request that the client send a letter to the client's attorney. This letter, known as a lawyer's letter or legal confirmation letter, is a request for information from the company's legal counsel regarding the litigation, claims, and assessments. The purpose is to gather evidence about the existence, status, and potential financial impact of the litigation on the company's financial statements.
The letter usually asks the attorney to confirm the information provided by management about the litigation and to provide the attorney's own opinion on the likely outcome and estimates of financial impact if possible. It serves as an important part of the auditor's procedures to obtain audit evidence about contingencies and assess the need for any disclosures or adjustments in the financial statements.