Question

Which of the following is not an audit procedure that the independent auditor would perform with respect to litigation, claims, and assessments?

1) Inquire of and discuss with management the policies and procedures adopted for identifying, evaluating, and accounting for litigation, claims, and assessments.
2) Obtain from management a description and evaluation of litigation, claims, and assessments that existed at the balance sheet date.
3) Obtain assurance from management that it has disclosed all unasserted claims that the lawyer has advised are likely to be asserted and must be disclosed.
4) Confirm directly with the entity's lawyer that all claims have been recorded in the financial statements.

Answer 1

The non-standard procedure in an audit concerning litigation, claims, and assessments is for the auditor to directly confirm with the entity's lawyer that all claims have been recorded; this is not typical as it may breach attorney-client privilege.

Step-by-step explanation:

The procedure that is not typically performed by an independent auditor in relation to litigation, claims, and assessments is option 4) Confirm directly with the entity's lawyer that all claims have been recorded in the financial statements. Confirming all claims directly with the entity's lawyer is not a standard audit procedure because it may infringe on attorney-client privilege, and it is the management's responsibility to ensure that all relevant claims are disclosed in the financial statements. Instead, an auditor would rely on management representations and possibly obtain a legal letter from the entity's lawyer confirming the information provided by management.