would the following statement about litigation, claims, and assessments extracted from a letter from a client’s legal counsel is most likely to cause the auditor to request clarification?
“I believe that the action can be settled for less than the damages claimed.”
yes -- The letter of inquiry requests, among other things, that legal counsel evaluate the likelihood of pending or threatened litigation, claims, and assessments. It also requests that legal counsel estimate, if possible, the amount or range of potential loss. Thus, the auditor is concerned about the amount of the expected settlement as well as the likelihood of the outcome. The statement that the action can be settled for less than the damages claimed is an example given in AU-C 501 of an evaluation that is unclear about the likelihood of an unfavorable outcome.