Final answer:
An attorney can limit a response to an auditor to matters of asserted, overtly threatened, or pending claims and litigation, focusing on those to which they've given substantive legal attention. Confidentiality is balanced with the need for transparency in relation to probable adverse outcomes.
Step-by-step explanation:
When an attorney is responding to an independent auditor as a result of a client's letter of inquiry, their response can be appropriately limited to asserted, overtly threatened, or pending claims and litigation. This typically includes items that the attorney has given substantive attention in the form of legal consultation or representation. Limitations in responses must be exercised with the understanding that the attorney is obligated to ensure not to mislead the auditor especially in cases where there is an extremely high probability of an adverse outcome for the client. The goal here is to ensure that all material risks that could affect the audited financial statements are accurately disclosed.
The standards guiding an attorney's response in an audit inquiry are designed to respect client confidentiality while ensuring that necessary disclosures are made. An attorney's response is crucial for auditors as it influences the fairness and accuracy of the financial reports, which will be used by investors, regulators, and other stakeholders.