• Explanation

An auditor is required to prepare, and arrange for management to sign, a letter of inquiry A letter sent by an auditor and signed by management requesting that a client's legal counsel corroborate information about ongoing legal matters identified by management. to an entity's external legal counsel. The letter requests that the attorney corroborate estimates provided by management regarding the amount of losses related to legal matters (eg, lawsuits, regulatory actions).

If the attorney refuses to respond to the letter, or if management refuses to give permission to communicate with the attorney, the auditor cannot gain sufficient and appropriate evidence to support the opinion. This scope limitation A restriction, imposed by the client or by circumstances beyond the client's control (eg, natural disaster), that prevents the auditor from collecting sufficient and appropriate audit evidence. requires a qualified opinion or disclaimer of opinion, depending on the pervasiveness A label that applies when GAAP departures are not confined to a specific element of the financial statements (F/S), could represent a substantial portion of the F/S, or relate to disclosures that are fundamental to the user's understanding of the F/S. of the possible implications.

(Choice A) Only material departures from GAAP affect an audit report.

(Choice B) If adequate assurance (ie, sufficient appropriate evidence) is obtained by performing alternate substantive procedures Procedures used to detect material misstatements due to error or fraud in an entity's financial statements., missing documentation will not affect the audit opinion.

(Choice C) Substantial doubt about the entity's ability to continue as a going concern will not affect the audit opinion unless it is not properly disclosed in the notes to the financial statements.

Things to remember:
A scope limitation (eg, the auditor's inability to obtain a letter of inquiry from the client's attorney) requires either a qualified opinion or a disclaimer of opinion.

Lecture References :

• AUD 5.07 : Obtaining Sufficient Appropriate Audit Evidence: Management Representation Letter & Attorney Letter