Communications Among Attorneys, Management and Auditors

One area of misunderstanding between attorneys and accountants in handling the letter of audit inquiry is that of unasserted possible claims where there are none to be asserted. If the accountant merely inserts the word ''none,'' after the caption, this requires the attorney to confirm that there exist no possible unasserted claims. The proper paragraph to follow the caption is the professional responsibility undertaking. Another area of misunderstanding is that involving counsel retained for an isolated item, who may feel that he/she should not be affected by the professional responsibility undertaking. When the audit inquiry responses are in, inside counsel must deal with the problem that most of the replies will indicate inability to assess likelihood or size of liability. The outside auditor must discuss with counsel whether the audit opinion will be expressed ''subject to'' the unknowns, a decision which is necessarily ad hoc. An area of continuing discussion is the management backup representation letter, also known as the client representation letter. All affected insiders should be aware of the Securities and Exchange Commission rule concerning the effects of supplying false or misleading statements to the auditor or accountant.