Question

What is the importance of the letter that the auditor requests the clients to send to all legal contacts. What does ir ask for – type of information - -and what does the auditor use the information for”

Answer 1

Legal audit letter

As many of you probably know, auditing standards require that an auditor confer with the attorneys for the audited entity about certain types of loss contingencies, such as pending litigation and unasserted claims. During this process, the audited entity/client asks that its attorneys respond to the “legal audit letter.” Some attorneys may view this procedure as cumbersome and perhaps even annoying, but it is a required element of the auditing process and must be taken seriously. This is especially so because the attorney’s response to the legal audit letter presents risk management problems particularly with respect to the potential waiver of the attorney-client privilege.

Generally, any disclosure to a third-party of otherwise privileged information acts as a waiver of the attorney-client privilege. There are limited exceptions to this rule. Accordingly, an attorney’s response to a legal audit letter could compromise the privilege. The ABA took note of this conundrum and issued a Statement of Policy Regarding Lawyers’ Responses to Auditor’s Requests for Information, which delineates the appropriate scope of a lawyer’s response to the auditor’s request. Attorneys should play close attention to this statement.