Auditors Must Communicate in Writing About Internal Control Weaknesses to the Audit
Auditors must communicate in writing about internal control weaknesses to the audit committee or those charged with governance.
Client representation letters are required by professional auditing standards,whereas management letters are optional.
The audit firm issues an audit report for its client.The auditor's have NO obligation to make further inquiries with respect to the client's audited financial statements unless: A) a development occurs that may affect the company's long term viability as a company. B) final resolution was made on disclosed contingency for which no liability needed to be accrued. C) new information comes to the auditor's attention concerning an event that occurred prior to the date of the audit report that, if known, would have impacted the audit opinion. D) a lawsuit, in which the risk of loss was considered remote, was resolved in the company's favor.
The fieldwork for the December 31,2013 audit of Treble Corporation ended on March 17,2014.The financial statements and auditor's report were issued and mailed to stockholders on March 29,2014.In each of the material situations (1 through 5)below,indicate the appropriate action (a,b,c,d,or e).The possible actions are as follows: a.Adjust the December 31,2013 financial statements. b.Disclose the information in a footnote in the December 31,2013 financial statements. c.Request the client revise and reissue the December 31,2013 financial statements.The revision should involve an adjustment to the December 31,2013 financial statements. d.Request the client revise and reissue the December 31,2013 financial statements.The revision should involve the addition of a footnote,but no adjustment,to the December 31,2013 financial statements. e.No action is required. The situations are as follows: ________ 1.On January 16,2014 a lawsuit was filed against Treble for a patent infringement action that allegedly took place in early 2010.In the opinion of Treble's attorneys,there is a reasonable (but not probable)danger of a significant loss to Treble. ________ 2.On February 19,2014,Treble settled a lawsuit out of court that had originated in 2009 and is currently listed as a contingent liability. ________ 3.On March 30,2014,Treble settled a lawsuit out of court that had originated in 2007 and is currently listed as a contingent liability. ________ 4.On February 2,2014,you discovered an uninsured lawsuit against Treble that had originated on August 30,2010. ________ 5.On April 7,2014,you discovered that a debtor of Treble went bankrupt on January 22,2014,due to a major uninsured fire that occurred on January 2,2014.