What Is an Attorney's Letter?
An attorney's letter is a conventional business letter sent by a certified public accountant (CPA) to a client's attorney. The attorney's letter confirms the data sent by the management of a company relating to pending litigation of the company.
The purpose of the attorney's letter is to illuminate and guarantee to the auditor of any legal action against the client that could bring about an adverse financial impact on the company's financial statements.
Figuring out an Attorney's Letter
The attorney's letter makes up a huge part of the financial audit process. At the point when auditors are leading a survey of a company's financials, they need to think about any litigation that might adversely affect the financials. In this manner, they need a full account of any pending lawsuits the company faces.
Auditors will request this letter for any audit and particularly assuming that they have an uncertainty that the management of the company they are auditing has litigation pending against it that they have not revealed. This letter will then, at that point, furnish them with the data that they need.
Basically, the letter looks to affirm that the data given by a client is accurate and complete. Endless supply of a response from an attorney, a CPA can better decide if a client's legal situation physically affects the data reported in its financial statements.
This is of special care when potential losses from damages granted as the consequence of a lost claim are a possibility. The payout would hurt the company's financial strength, subsequently, shareholders and potential investors should be made aware of these risks.
Accounting and Auditing Considerations
It is fundamentally management's responsibility to put in place procedures to account for any litigation, claims, and evaluations against the company while getting ready financial statements in compliance with generally accepted accounting principles (GAAP).
According to litigation, claims, and appraisals, the auditor needs to get data connected with the matter. The data that they should gather should the follow:
- The presence of any situation that could be an expected loss to a company that has happened through litigation.
- The specific time span when the matter that caused the litigation happened.
- The probability of an outcome that would be negative to the company.
- An estimate of the expected loss.
An attorney's letter is intended to check all of the above data that would come from management. The letter is normally possibly required when the financial loss would be material, which would be settled on between the auditor and the company.
- The attorney's letter is utilized in the audit cycle fully intent on revealing potential losses emerging from lawsuits against the company that could negatively impact a company's financial position.
- Data shipped off an accountant by a company's management connected with pending litigation is confirmed through an attorney's letter.
- An attorney's letter is a proper business letter from a certified public accounting to a company's attorney.