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Company Audits—Auditors' Enquiries
The Society has been in consultation with the Institute
of Chartered Accountants as to the information which
may be required by an accountant from a solicitor in
connection with the audit of a company which is a
client of the auditor and the solicitor. In the past
solicitors have been receiving from auditors fairly de-
tailed enquiries as to possible liabilities of the company
known to the solicitor concerned which ought to be
included as a liability in the company accounts. Solici-
tors have been reluctant to answer these enquiries be-
cause of the possible legal liability which might accrue
from any error or omission and the difficulty of ascer-
taining at any given time with any reasonable degree
of accuracy the actual or contingent liabilities of the
company for which the solicitor acts.
The Society and the Institute in dealing with this
matter have had regard to two desirable aims, first
that the solicitor should comply as far as possible with
the reasonable requirements of the accountant and
supply any information within his knowledge which
ought to influence the auditors in certifying the com-
pany accounts or matters to which attention should
be drawn in the accounts and, secondly, the avoidance
of liability for error or omission and the simplification
of the work as far as possible in the solicitor's office.
It is of course realised that solicitors in dealing with
this matter should render the maximum service as
efficiently as possible to enable the auditors to prepare
and certify the accounts in accordance with the Com-
panies Acts.
With this end in view the following form of letter
has been agreed between the Institute and the.Society.
It will be noted that—
(1)
(2)
(3)
(4)
the letter is from the client to the solicitor,
the estimates of liabilities are submitted by the
directors of the company to the solicitor and he is
asked to state whether or not he agrees with them,
if the solicitor disagrees with the directors' estimate
he inserts his own figures,
the solicitor is asked to give an estimate of the
costs and outlay due to him at the audit date and
the amount of monies held by him on behalf of
the company at the same date.
It is expressly stated that the estimates are given or
accepted on the basis that the solicitor will not incur
any liability for loss or damage suffered by any person
in the event of the estimates being incorrect.
The Council are of the opinion that solicitors may
safely comply with auditors requirements on the basis of
the following letter.
From:
Client (Name and Address)
To:
Solicitor (Name and Address)
Date
Dear Sir(s),
Re : Balance Sheet at
(1) In connection with the preparation and audit of
our accounts as at the date mentioned above the direc-
tors of the Company have made estimates of the
amounts of the ultimate liabilities (including costs)
which might be incurred, and are regarded a smaterial,
in relation to the matters set out in Schedule 1, on
which you have been consulted.
We should be obliged if you would confirm that in
your opinion these estimates are reasonable and, where
you take a different view, please insert your own
estimate.
If you leave any of the directors' estimates un-
changed, it will be taken that you agree with the same.
It is agreed that any estimates given or accepted by
you are given or accepted on the basis that you will not
incur any liability whatever for any loss or damage
which may be suffered by any person by reason of any
such estimates being incorrect either on the basis of
facts presently known or facts subsequently coming to
light.
(2) Would you please estimate in Schedule 2 the
amount of costs and outlay due or accrued to you by
the Company as at the balance sheet date, together with
your costs for dealing with this query form, so far as is
possible without necessarily drawing a bill of costs and
without any commitment on your part to the amount
so estimated.
(3) Would you please indicate in Schedule 3 the
amount of any monies held by you on behalf of the
Company as at the balance sheet date.
(4) This letter and form are submitted in duplicate.
Please retain the copy and send the completed original
direct to our Auditors :
Yours faithfully,
Director/Secretary
Auditor's Name
Auditor's Address
Form No.
Client's Name
Client's Address
Audit period .ended
Schedule 1—Estimate of liabilities
Matter
Directors'
Estimate
£
Solicitors'
Estimate
£
l
Schedule 2—Costs and outlay accrued due
£
by client at the balance sheet
date (estimated)
Schedule 3—Monies held by Solicitor on
£
behalf of client
Date
Signed
Solicitors
175