TOEING THE LINE - THE DELICATE BALANCE ATTORNEYS MUST MAINTAIN WHEN RESPONDING TO AUDITOR INQUIRY REQUEST LETTERS

Sep 15, 2026

Uploaded by Rizky

The Note analyzes the attorney’s dilemma when responding to audit legal inquiry request letters issued in connection with auditing a company’s financial statements. It explains that auditors must ensure reports conform to GAAP and obtain information about pending litigation or unasserted claims, while attorneys must protect client confidentiality and also consider corporate management’s preferences. The work identifies a fundamental mismatch between the scope of information auditors seek and the information lawyers are willing to provide.

LanguageEnglish

CategoryLetters

FormatPDF

Pages27

Reading Time9 min

AccessFree to download

Introduction

SEC filing and reliance on public accounting firms

Auditors’ request for litigation-related information

Attorneys’ confidentiality and management considerations

Part I: contrasting objectives

Divergent loyalties and disclosure difficulty

Part II: gaps between FASB requirements and ABA guidance

Disconnects in audit letter responses

TOEING THE LINE: THE DELICATE BALANCE ATTORNEYS MUST MAINTAIN WHEN RESPONDING TO AUDITOR INQUIRY REQUEST LETTERS * R. ALEXANDER SWIDER INTRODUCTION The Securities and Exchange Commission (“SEC”) requires all publicly traded companies to file quarterly and annual financial statements with the SEC. 1 Before filing these financial statements, a publicly held company must engage a public accounting firm2 to opine on the accuracy of the company’s statements .3 Even those companies that are not publicly traded are often obligated to produce financial reports to prove they are in compliance with lender debt covenant stipulations,4 to provide management with key financial indicators to help make operational decisions, and to allow potential investors to make informed decisions * J.D. Candidate, 2017, Indiana University Robert H. McKinney School of Law; Bachelor of Science, 2011, Indiana University—Bloomington. Mr. Swider is a Certified Public Accountant licensed in Indiana and practiced for nearly three years with a public accounting firm in Indianapolis prior to his study of law. He would like to thank his wife (Hollyn), parents (David and Cynthia), siblings (Joel—who helped come up with the topic of this Note—and Christina), and adopted furry son (Ollie) for lovingly providing support throughout the Note-writing process. 1. Securities Exchange Act of 1934, 17 C.F.R. § 240.13a-13 (2016) (mandating quarterly reports for publicly traded companies); 17 C.F.R. § 240.13a-1 (mandating annual reports for publicly traded companies) . 2. Public accounting firms employ Certified Public Accountants (“CPAs”) to audit the financial statements of publicly held companies. CPAs are professionals who have met the requirements set forth by each individual state’s board of accountancy. While each state sets its own additional specific requirements, becoming a CPAin all states requires“completing a program of study in accounting at a college or university, passing the Uniform CPA Exam, and obtaining a specific amount of professional work experience in public accounting.” FAQs –Become a CPA, AM . IN ST . CPAS , [http://www. aicpa. org/BecomeACPA/FAQ s/Pages/FAQ s. aspx](http://www. aicpa. org/BecomeACPA/FAQ s/Pages/FAQ s. aspx)[ ](http://www. aicpa. org/BecomeACPA/FAQ s/Pages/FAQ s. aspx)[[http://perma.cc/3KWF-D5M8](http://perma.cc/3KWF-D5M8)](last visited Mar. 23, 2017). CPAs may serve a variety of roles for their clients, including completing tax work, helping analyze the valuation of a business, IT consulting, and auditing a corporation’s financial statements. CPA Career Paths, AM. INST. CPAS, [http://www.aicpa.org/career/careerpaths/pages/default.aspx](http://www.aicpa.org/career/careerpaths/pages/default.aspx) [[https://perma.cc/3FYL-BRKD](https://perma.cc/3FYL-BRKD)](last visited Apr. 21, 2017). When this Note refers to a CPA, accountant, public accountant, or auditor, this Note is referring to a CPA’s role as an auditor of a public or private company’s financial statements, unless otherwise specified. 3. Investor Publications, U.S. SEC. & EXCHANGE COMMISSION, [http://www.sec.gov/](http://www.sec.gov/)[ ](http://www.sec.gov/)investor/pubs/aboutauditors.htm [[http://perma.cc/9W7M-LXZ7](http://perma.cc/9W7M-LXZ7)](last visited Mar. 23, 2017). 4. Debt or loan covenants are clauses within lending contracts that impose requirements on the borrower to keep a given financial metric above a specified level. See The Basics of Lending and Loan Covenants, SUNTRUST, [https://www.suntrust.com/resourcecenter/article/the-basics-of](https://www.suntrust.com/resourcecenter/article/the-basics-of)lending-and-loan-covenants\# [[https://perma.cc/9GCR-RPNH](https://perma.cc/9GCR-RPNH)] (last visited Apr. 21, 2017). If a metric falls below the agreed-upon level, the lender may call its loan. See id. [http://doi.org/10.18060/4806.1158](http://doi.org/10.18060/4806.1158) 970 INDIANA LAW REVIEW [Vol. 50:969 about whether to buy or sell ownership in a

FAQs

Why do public accounting firms send legal inquiry request letters during an audit?

Because auditors must obtain specific information from lawyers about pending litigation or unasserted claims to support the audit of the company’s financial statements and ensure conformity with GAAP.

What makes it difficult for attorneys to respond to audit legal inquiry letters?

Attorneys may be reluctant to disclose detailed information due to client confidentiality obligations and uncertainty about how courts might handle the relevant matters, while auditors seek broader disclosure.

What gap does the Note identify between standard-setting guidance and actual responses?

It describes a gap between what the FASB requires accountants to request from attorneys in audit legal letters and what the ABA advises lawyers to provide in response.

Sep 15, 2026

Uploaded by Rizky