Which of the following Defines a Legal Letter

Chartered accountants will request this letter for every audit, especially if they have doubts that the management of the company they are auditing has an ongoing lawsuit against them that they have not disclosed. This letter will then provide them with the information they need. The lawyer`s letter is an essential part of the financial audit process. When conducting a review of a company`s finances, they should consider any litigation that may negatively impact its finances. Therefore, they need a full report on all ongoing lawsuits facing the company. A lawyer`s letter is a formal business letter sent by a chartered accountant (CPA) to a client`s lawyer. The lawyer`s letter reviews information sent by a company`s management in relation to the company`s ongoing litigation. With regard to disputes, complaints and assessments, the auditor must obtain information relating to the case. The information they must collect should be as follows: A lawyer`s letter should verify all of the above information that would come from management. The letter is usually only needed if the financial loss is significant, which would be decided between the auditor and the company. Essentially, the purpose of the letter is to confirm that the information provided by a client is accurate and complete.

After receiving a response from a lawyer, a CPA can better determine whether a client`s legal position has a material impact on the information presented in their financial statements. The purpose of the lawyer`s letter is to inform and certify the auditor of any legal action against the client that could have a negative financial impact on the company`s financial statements. This is particularly prudent when possible losses of damages awarded as a result of a lost dispute are possible. The payment would affect the financial strength of the company, so shareholders and potential investors should be made aware of these risks. Management is primarily responsible for establishing procedures to record disputes, claims and valuations against the Company when the financial statements are prepared in accordance with generally accepted accounting principles (GAAP).