Read problem 11.56 Client Request for Attorney Letter on pages491 and 492 of the textbook. Describe the omissions, ambiguities,and inappropriate statements and terminology in Brownâs letter.Remember that this is Brownâs letter requesting a response toauditors, but it must request responses in the manner most usefulto auditors. Problem:11.56: Client Request for Attorney Letter. Thefirm of Cole and Cole, CPAs, is auditing the financial statement ofConsolidated Industries Co., for the year ended December 31, 2012.On May 6, 2013, C. R. Brown, Consolidatedâs chief financialofficer, gave the auditors a draft of an attorney letter for Coleâsreview before mailing it to J. J. Young, Consolidatedâs outsidecounsel. The letter is intended to elicit the attorneyâs responsesto corroborate information furnished to the auditors by managementconcerning pending and threatened litigation, claims, assessments,and unasserted claims and assessments. Clientâs Attorney LetterRequest May 6, 2013 J.J. Young, Attorney at Law 123 Main Street,Anytown, USA Dear J. J. Young: In connection with an audit of ourfinancial statements at December 31, 2012, and for the year thenended, management of the Company has prepared, and furnished to ourauditors, Cole and Cole, CPAs, a description and evaluation ofcertain contingencies, including those set forth below, involvingmatters with request to which you have been engaged and to whichyou have devoted substantive attention on behalf of the Company inthe form of legal consultation or representation. Your responseshould include matters that existed at December 31, 2012. Becauseof the confidentiality of all these matters, your response may belimited. In November 2012, an action was brought against theCompany be an outside salesman alleging breach of contract forsales commissions and asking an accounting with respect to claimsfor fees and commissions. The causes of action claim damages of$3,000,000, but the Company to a successful judgement on behalf ofthe plaintiff is slight. In July 2012, an action was broughtagainst the Company by Industrial Manufacturing Company(Industrial) alleging patent infringement and seeking damages of$20,000,000. On October 16, 2012, the U.S. District Court decidedthat the Company had infringed on seven Industrial patents andawarded damages of $14,000,000. The Company vigorously denies theseallegations and has filed an appeal with the U.S. Court of Appeals.The appeal process is expected to take approximately two years, butthere is some chance that Consolidated may ultimately prevail.Please furnish to our auditors such explanation, if any, that youconsider necessary to supplement this information, including anexplanation of those matters as to which your views may differ fromthose stated, and an identification of the omission of any pendingor threatened litigation, claims, and assessments or a statementthat the list of such matters is complete. Your response may bequoted or referred to in the financial statements without furthercorrespondence with you. You also consulted on various othermatters considered to be pending or threatened litigation. However,you may not comment on these matters because publicizing them mayalert potential plaintiffs to the strengths of their cases. Inaddition, various other matters probable of assertion that havesome chance of an unfavorable outcome, as of December 31, 2012, arepresently considered unasserted claims assessments. Respectfully,C. R. Brown Chief Financial Officer
Read problem 11.56 Client Request for Attorney Letter on pages491 and 492 of the textbook. Describe the omissions, ambiguities,and inappropriate statements and terminology in Brownâs letter.Remember that this is Brownâs letter requesting a response toauditors, but it must request responses in the manner most usefulto auditors. Problem:11.56: Client Request for Attorney Letter. Thefirm of Cole and Cole, CPAs, is auditing the financial statement ofConsolidated Industries Co., for the year ended December 31, 2012.On May 6, 2013, C. R. Brown, Consolidatedâs chief financialofficer, gave the auditors a draft of an attorney letter for Coleâsreview before mailing it to J. J. Young, Consolidatedâs outsidecounsel. The letter is intended to elicit the attorneyâs responsesto corroborate information furnished to the auditors by managementconcerning pending and threatened litigation, claims, assessments,and unasserted claims and assessments. Clientâs Attorney LetterRequest May 6, 2013 J.J. Young, Attorney at Law 123 Main Street,Anytown, USA Dear J. J. Young: In connection with an audit of ourfinancial statements at December 31, 2012, and for the year thenended, management of the Company has prepared, and furnished to ourauditors, Cole and Cole, CPAs, a description and evaluation ofcertain contingencies, including those set forth below, involvingmatters with request to which you have been engaged and to whichyou have devoted substantive attention on behalf of the Company inthe form of legal consultation or representation. Your responseshould include matters that existed at December 31, 2012. Becauseof the confidentiality of all these matters, your response may belimited. In November 2012, an action was brought against theCompany be an outside salesman alleging breach of contract forsales commissions and asking an accounting with respect to claimsfor fees and commissions. The causes of action claim damages of$3,000,000, but the Company to a successful judgement on behalf ofthe plaintiff is slight. In July 2012, an action was broughtagainst the Company by Industrial Manufacturing Company(Industrial) alleging patent infringement and seeking damages of$20,000,000. On October 16, 2012, the U.S. District Court decidedthat the Company had infringed on seven Industrial patents andawarded damages of $14,000,000. The Company vigorously denies theseallegations and has filed an appeal with the U.S. Court of Appeals.The appeal process is expected to take approximately two years, butthere is some chance that Consolidated may ultimately prevail.Please furnish to our auditors such explanation, if any, that youconsider necessary to supplement this information, including anexplanation of those matters as to which your views may differ fromthose stated, and an identification of the omission of any pendingor threatened litigation, claims, and assessments or a statementthat the list of such matters is complete. Your response may bequoted or referred to in the financial statements without furthercorrespondence with you. You also consulted on various othermatters considered to be pending or threatened litigation. However,you may not comment on these matters because publicizing them mayalert potential plaintiffs to the strengths of their cases. Inaddition, various other matters probable of assertion that havesome chance of an unfavorable outcome, as of December 31, 2012, arepresently considered unasserted claims assessments. Respectfully,C. R. Brown Chief Financial Officer
