Cole & Cole, CPAs, are auditing the financial statements of Consolidated Industries Co. for the year ended December 31, 2003. On February 20, 2004, Cole asked the client to draft an inquiry letter to J. J. Young, Consolidated’s outside attorney, to corroborate the information furnished to Cole by management concerning pending and threatened litigation, claims, and assessments; and unasserted claims and assessments. On March 6, 2004, C. R. Brown, Consolidated’s chief financial officer, gave Cole a draft of the inquiry letter for Cole’s review before mailing it to Young.

Required:

Describe the omissions, ambiguities, and inappropriate statements and terminology in Brown’s letter.

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J.J. Young, Attorney at Law 123 Main Street Anytown, USA March 6, 2004 Dear J. J. Young: In connection with an audit of our financial statements at December 31, 2001, and for the year then ended, management of the Company has prepared, and furnished to our auditors, Cole & Cole, CPAs, 456 Broadway, Anytown, USA, a description and evaluation of certain contingencies, includ- ing those set forth below involving matters with respect to which you have been engaged and to which you have devoted substantive attention on behalf of the company in the form of legal consul- tation or representation. Your response should include matters that existed at December 31, 2001. Because of the confidentiality of all these matters, your response may be limited. In November 2003, an action was brought against the company by an outside salesman alleging breach of contract for sales commissions and pleading a second cause of action for an accounting with respect to claims for fees and commissions. The causes of action claim damages of $300,000 but the company believes it has meritorious defenses to the claims. The possible exposure of the com- pany to a successful judgment on behalf of the plaintiff is slight. In July 2000, an action was brought against the company by Industrial Manufacturing Co. (In- dustrial) alleging patent infringement and seeking damages of $20,000,000. The action in U.S. Dis- trict Court resulted in a decision on October 16, 2003, holding that the company infringed seven In- dustrial patents and awarded damages of $14,000,000. The company vigorously denies these allegations and has filed an appeal with the U.S. Court of Appeals for the Federal Circuit. The ap- peal process is expected to take approximately two years, but there is some chance that Industrial