The Canadian Bar Association and the Auditing and Assurance Standards Board have issued a new Joint Policy Statement (the "JPS 2016"), which will come into effect on December 1, 2016. A copy of the JPS 2016 can be accessed here.
The basic purpose of the JPS 2016 remains the same as the previous versions it replaces (the 1978 JPS and the 2010 "Interim Guidance"): to assist Law Firms, Auditors, and Entities to communicate effectively with respect to claims and possible claims against or by the Entity, while (i) protecting privilege; and (ii) keeping Law Firms from becoming involved in a joint undertaking with the Auditor.
The JPS 2016 attempts to provide clarity in regard to the respective responsibilities of the parties involved in the audit inquiry/response process, namely, the "Entity", "Law Firm", and "Auditor", and clearer rules regarding timing.
The JPS 2016 makes it clear that management of the Entity is responsible for listing all of the claims and possible claims on which the Law Firm's advice has been sought and for providing an evaluation of the outcome of the claim and, to the extent possible, an estimate of its financial effects in the Audit Inquiry letter that is sent to the law firms. The JPS makes clear that inquiry letters that do not list claims and possible claims (when such claims exist) and do not include management's evaluation are improper. Entities are strongly encouraged to consult with the Law Firm in regard to the evaluation of claims prior to sending out the Inquiry Letter.
In regard to timing, the JPS 2016 provides that the inquiry letter should be sent by the auditor to the Law Firm at least 3 weeks prior to the effective date (unless this is not practical) and that the Law Firm should provide its response within 5 days of the effective date unless a shorter period of time has been agreed upon.
It is important to review the JPS 2016 prior to your next audit to fully understand the roles and interplay of the respective parties in an audit / inquiry response process.
 The organization whose financial statements are being audited.
 Sole practitioner, two or more lawyers practicing together in a partnership, corporation or other entity, or in-house legal counsel who is representing or advising the Entity with respect to claims and possible claims.
 The person or persons conducting the audit.