[snowwing3731]

They gave the answer A for the below question, but I believe D is more appropriate. Can anyone please help?

11. A company’s management provided its auditors with information concerning litigation, claims, and assessments. Which of the following is the auditor’s primary means of corroborating management’s information?

A. Inquiring of company’s outside counsel.

B. Meeting with the company’s audit committee.

C. Meeting with the company’s Chairman of the Board.

D. Inquiring of the company’s in-house counsel.

Thanks.

[JeanPaul9]

I chose D “in-house counsel” too but was surprised after looking at the answer. I assume outside counsel might be appropriate if the caliber of the litigation is significant to the entity and material to the FS On the other hand, from a generalized point of view, most in house lawyers are only capable of handling small claims which might not be material to the FS. It's just my understanding. Also, outside sources are more persuasive for evidence.

[Missy]

Corroborating is generally done externally with a 3rd party. Heres a good tip on MCQ's, if three of the answers have something MAJOR in common (i.e. choices B,C, and D are all within the client) then they're trying to rule out that commonality.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[okcpa2015]

Evidence must be Sufficient and Appropriate.

Part of Appropriate evidence is the Relevance and Reliability of that evidence. Generally, evidence that is obtained by a 3rd party, outside the organization, is more reliable (therefor more appropriate) than evidence obtained from inside the organization.

Hope that answers your question.

FAR - 91
REG - 88
AUD - 98
BEC - 88

[Anonymous]

I chose A also because the evidence is better supported from a 3rd party. Also, you have to review the questions carefully. The facts in the question did not state that the company had in house counsel and all companies do not so it can't be assumed that they did.

[snowwing3731]

Still confused because: AU-C 501.A49 states, “A letter of inquiry to the entity's legal counsel is the auditor's primary means of obtaining corroboration of the information provided by management concerning material litigation, claims, and assessments.” (Emphasis added)

[jaxon1024]

By that they mean just because management tells you there is no litigation doesn't mean that is always the case. So the third party confirmation is more reliable than what management may or may not tell you.

Reg 85 (11-21-14)
Aud 93 (1-17-15)
Bec 89 (2-27-15)
Far 92 (5-7-15)

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[Author]

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