Pending Litigation - Audit Process
Since of the inherent uncertainty, in calculating the outcome of legal actions so this is an especially difficult area for the auditor. Several actions are possible that assist in certifying the existence however not essentially the amount of liabilities such will arise out of legal action.
These included:
a) Review of the client system for recording disputes and claims and the process for bringing this to the attention of the board.
b) Review of the managements for instructing solicitors.
c) Examination of the minutes of the board for references to and indications of probable claims.
d) Inspection of bills rendered through the solicitors.
e) Review of correspondence along with solicitors and obtaining a list of all issues referred to solicitors along with an estimate of the possible ultimate liability.
f) Written assurance in the form of a representation letter from a suitable director which he is not aware of any other matters referred to the lawyers another than those disclosed. Whether the auditor is in doubt he should receive a direct confirmation from the Company's lawyers. The request must be send by the client not through the auditor.