Replying to audit letters: zzzzzzzzz….

It’s that time of the year again.  IP Draughts has several letters on his desk from clients, asking him standard questions to which he must reply to the client’s auditors directly.

It is obvious that each letter has been prepared using the auditor’s template documentation.  As the auditors are different in each case, the wording of the questions is different, but they tend to follow a similar theme.

IP Draughts is left wondering what value there is in these letters for the company or its shareholders.  Are the letters simply an exercise in job creation for the auditors and for the lawyers who reply to them?

Some, but not all, of these letters start by asking for “details of any title deeds or other documents of title held by you for us…”  That’s an easy one to answer: we don’t hold documents of title for clients.  Part of us wonders whether this standard question pre-dates the registration of land in England and Wales (under the Land Registration Acts), which in the vast majority of cases makes title deeds redundant in the modern era.  We also wonder idly why our possession of such deeds would be relevant to the audit of the client, but we don’t care enough to enquire further.

Next, we are often asked to confirm whether the estimates made by the directors of potential liabilities are reasonable.  Sometimes this question is preceded by a table setting out those estimates.  More often than not the table is blank, making the question redundant.  In one letter on our desk, there is no table and the question just refers to “any estimates made by the directors…”  Excuse me?  How are we supposed to know what estimates they have made?

Usually, we are asked about any litigation involving the company on which we have been consulted.  In principle, this question is understandable.  It seems obvious that litigation involving the company could have an impact on the state of the company’s accounts.  The wording of the question doesn’t always live up to the principle, though.  The three examples in front of us use different words:

Example 1: “Details of any litigation and claims in progress or pending which concerns us and of which you have knowledge.”

Example 2: “Details of any outstanding claims against the companies on which you have been consulted where the individual claim is in excess of £500.”

Example 3: “Details of any outstanding claims, of which you are aware, stating the amounts claimed.”

Draftsmen will notice some significant differences between these three questions.  Presumably we should imply into the third example some connection between the claim and the client?  But should this be a closer or looser connection than that mandated by the first example, which refers to claims that “concerns” (sic) us?  Should we also assume that it is only claims against the client, rather than by the client?  The second example states this directly, unlike the other two.

There are several other anomolies in the three examples.  Some people might argue that we shouldn’t care about the precise wording of the question, and should notify the auditors of any claims or potential claims involving the client of which we have knowledge.

We are left with the impression that writing to the client’s solicitors is a mechanical, “tick box” process for annual audits, where very little thought or care is put into the exercise.  Are we alone in finding it mildly insulting to receive such poorly-considered questions?  Should IP Draughts be taking more anti-grumpiness pills and leave off replying to these letters until the Autumn?

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