Final answer:
The correct option is 'd: Confirm directly with the client's lawyer that all claims have been recorded in the financial statements.' Auditors typically do not perform this procedure; instead, they rely on a letter of inquiry sent to the client's lawyers as part of their audit evidence.
Step-by-step explanation:
The question pertains to an audit procedure related to litigation, claims, and assessments in financial auditing. During the course of an audit, it is crucial to assess the accuracy and completeness of litigation, claims, and assessments recorded in the financial statements to ensure they reflect the true financial position and results of the entity's operations. Out of the four options provided, the auditor typically performs the following:
Inquire of and discuss with management the policies and procedures adopted for identifying, evaluating, and accounting for litigation, claims, and assessments.
Obtain from management a description and evaluation of litigation, claims, and assessments that existed at the balance sheet date.
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.
However, it is not standard practice for an auditor to directly confirm with the client's lawyer that all claims have been recorded in the financial statements. Instead, the auditor would request the client to send a letter of inquiry to their lawyers asking for information regarding litigation, claims, and assessments and then evaluate the sufficiency of the lawyer's response as part of the audit evidence. Thus, the correct option is:
Option d: Confirm directly with the client's lawyer that all claims have been recorded in the financial statements.
In summary, while auditors will perform several procedures to investigate litigation, claims, and assessments, directly confirming with the client's lawyer that all claims have been recorded in the financial statements is not one of them.