Reference no: EM132613910
Question - You are near completion of the Specter Inc. audit and the audit work will be completed by February 22, 2017, except for any adjustments related to the responses from the company's lawyers to the letters of inquiry. It is anticipated that the Board of Directors will approve the financial statements on March 3, 2017. You obtained the letters of inquiry prepared by management and have sent them to the client's external lawyers, using IFRS as the accounting framework, and requesting their response by March 2, 2017.
Management has not recorded any amount in the financial statements or made any disclosures for contingent losses as they were waiting for confirmation of their evaluations from the lawyers.
March 4, 2017, you have received the following replies from each of the lawyers:
Lawyer 1 - Response confirms the reasonableness of management's evaluation of the $500,000 claim as being probable and that the company will be required to pay the full amount as settlement.
Lawyer 2 - Lawyer 2 has not replied.
Lawyer 3 - Response confirms the reasonableness of management's evaluation of the claim as being probable and that the amount of settlement cannot be determined at this time.
Lawyer 4- Response confirms there are no claims against Specter.
Lawyer 5 - Response confirms the reasonableness of management's evaluation of the $750,000 claim as being remote.
Required -
1. For each of the responses from the five lawyers above, indicate if you would expect management to adjust the financial statements or disclose the contingencies. If you would expect them to do neither you should indicate this. Ensure you include why you expect this treatment.
2. Identify an additional procedure the auditor should perform based on the responses from the lawyers.
3. Due to unexpected circumstance, the board of directors meeting was moved to March 15. As the auditor, in order to meet the requirements of CAS 501 - Audit evidence - special considerations for selected items, should the responses from the lawyers to the letters of inquiry be updated, and if so to what date?