Question

A lawyer's response to an auditor's inquiry concerning litigation, claims, and assessments may be limited to matters that are considered individually or collectively material to the client's financial statements. Which parties should reach an understanding on the limits of materiality for this purpose?

a. The auditor and the client's managements.

b. The client's audit committee and the lawyer.

c. The client's management and the lawyer.

d. The lawyer and the auditor.

Answer 1

The correct answer is: The client's management and the lawyer.

The client's lawyer is the one who provides information to the auditor about litigation, claims, and assessments. The client's management is the one who is responsible for the financial statements. Therefore, the client's management and the lawyer should reach an understanding on the limits of materiality for this purpose.