Question

Auditors often request that the entity send a letter of inquiry to those attorneys who have been consulted with respect to litigation, claims, and/or assessments. The primary reason for this request is to provide the auditor with?

1) an estimate of the dollar amount of the probable loss.
2) an expert opinion as to whether a loss is possible, probable, or remote.
3) information concerning the progress of cases to date.
4) corroborative inquiries made of the entity by the auditor.

Answer 1

Auditors request a letter of inquiry to attorneys to gain an expert opinion on the likelihood and classification of a possible loss for a comprehensive assessment during an audit.

Step-by-step explanation:

Auditors request a letter of inquiry to be sent to attorneys consulted about litigation, claims, and assessments primarily to obtain expert opinion about the likelihood of a loss and its implications. The goal is not merely to assess the potential dollar amount but to gauge the potential impact on the entity's financial statements by understanding if a loss is possible, probable, or remote.

This inquiry provides auditors with critical information about the legal situations that may affect the financial health of the entity, which in turn assists them in making a fair assessment and preparing an accurate audit report.