4. To check the completeness assertion for Contingencies, the auditor sent a letter of inquiry to the client's attorney. The Attorney Letter was received by mail on February 25, Year 2.

Barlow & King, LLP

February 23, Year 2

Forest & Glen CPAs,

We advise you that at and since December 31, Year 1, we have not been engaged to give substantive attention to, or represent Shipps Machinery in connection with any pending or threatened litigation, claims, or assessments, except as follows:

A. Nathaniel v. Shipps Machinery. This matter commenced in September, Year 1. The plaintiff is a former employee who alleges work-related injuries sustained when the plaintiff fell on the factory floor. The plaintiff alleges that a lack of routine maintenance caused a leak, which leak led to his fall and injuries. The plaintiff is demanding $400,000. We believe that is probable that there will be a loss in the range of $200,000$300,000. There is no amount in the range that is a better estimate than any other amount within the range.

We are unaware of any other litigation, claims, or assessments against Shipps Machinery at this time.

Sincerely,

Barlow & King, LLP

(1) Is the evidence collected sufficient and appropriate? A. Yes____ B. No_____

(2) Please determine the auditor's next likely action by selecting the appropriate option from the list provided at the bottom of this question (Options A-J):____________

List for the auditor's next likely actions:

A. No further action is needed.

B. Accounts payable confirmations should be sent to a sample of vendors with large outstanding balances at year-end.

C. Confirmation responses received electronically should be verified by calling the sender and the sender is also requested to mail the original confirmation directly to the auditor.

D. Confirmations should be sent to an additional sample of customers for further evidence.

E. Engage an audit specialist to review lawsuit and determine independent probability of loss.

F. Inquiries of management should be made as to the $0 balance account, as this may be a sign of fraud.

G. Propose an adjusting journal entry for the maintenance expense incorrectly excluded from Year 1.

H. Request that the attorney send an exact amount of probable loss.

I. Separate confirmation request should be sent to request information regarding any loans or liens outstanding.

J. To test for completeness, perform a search for unrecorded liabilities.