The statutory audit of Nizovus Pharmaceuticals Ltd., for the financial year 2025-26, is underway. During the review of "Professional and Legal Fees"…

SA 580 “Written Representations” deals with the auditor's responsibility to obtain written representations from management and, where appropriate, those charged with governance. Although written representations provide necessary audit evidence, they do not provide sufficient appropriate audit evidence on their own about any of the matters with which they deal. Furthermore, the fact that management has provided reliable written representations does not affect the nature or extent of other audit evidence that the auditor obtains about the fulfilment of management's responsibilities or about specific assertions. Further, SA 501 "Audit Evidence - Specific Considerations for Selected Items", states that when audit procedures performed indicate that material litigation or claims may exist, the auditor shall seek direct communication with the entity's external legal counsel. The auditor shall do so through a letter of inquiry prepared by management and sent by the auditor, requesting the entity's external legal counsel to communicate directly with the auditor. In the given situation, significant payment to an IP litigation law firm, references in Board minutes to a possible patent infringement claim, and management's refusal to allow direct communication with legal counsel indicate a significant audit risk. As the matter may involve a contingent liability requiring disclosure or provision, she should not rely solely on management representation in this matter. The refusal to permit direct communication with external legal counsel is a significant audit concern and may indicate a scope limitation and risk of material misstatement relating to contingent liabilities and litigation disclosures. Accordingly, CA Rukma shall design and perform additional audit procedures in order to identify litigation and claims involving the entity by: Inquiry of management and, where applicable, others within the entity including in-house legal counsel.Reviewing minutes of meetings of those charged with governance and correspondence between the entity and its external legal counsel.Reviewing legal expense account. CA Rukma should express the modified opinion in accordance with SA 705 "Modifications to the Opinion in the Independent Auditor's Report", if she could not communicate with external legal counsel and unable to obtain sufficient appropriate audit evidence by performing additional audit procedures.