Please describe the procedures an auditor could perform to obtain evidence about existing legal encumbrances. Additional information about what are legal encumbrances can be found below.

"A major consideration in verifying disclosures related to fixed assets is the possibility of legal encumbrances arising from use of fixed assets as collateral for a loan. Auditors may use several methods to determine whether equipment is encumbered, including:

Read the terms of loan and credit agreements

Send loan confirmation requests to banks and other lending institutions

Have discussions with the client or send letters to legal counsel

The proper presentation and disclosure of equipment in the financial statements must be evaluated carefully to make sure that accounting standards are followed. Equipment should include the gross cost and should ordinarily be separated from other fixed assets. Leased property should also be disclosed separately, and all liens on property must be included in the footnotes. Auditors must perform sufficient tests to verify that all four presentation and disclosure objectives are met." (textbook)

"Because encumbrances create an unclear title, issues can arise upon selling or transferring ownership of the property." http://smallbusiness.chron.com/difference-between-lien-encumbrance-35007.html