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15 Cards in this Set
- Front
- Back
Contingent Liabilities |
A contingent liability is defined as an existing condition or set of circumstances involving uncertainty as to possible loss that will ultimately be resolved when some future event occurs or fails to occur. |
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Examples of Contingent liabilities |
Pending or threatened litigation, actual or possible claim and assessments, income tax disputes, product warranties or defects, guarantees of obligations to others, agreements to repurchase receivables that have been sold |
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Probable |
The future event is likely to occure |
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Reasonably possible |
the chances of the future event occurring is more than remote but less than likely |
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Remote |
the chance of the future event occurring is slight |
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How does the auditor identify contingent liabilities? |
Review company internal revenue service report for unsettled income tax liability, search the board of director meeting minutes for discussion of potential or current lawsuit. Legal expense accounts in accounting system. A letter of AUDIT INQUIRY is sent to the client's attorney is the primary means of obtaining information |
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Subsequent Event (Timeline) |
After Financial statement date, but before auditor report is issued |
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Subsequent Event - Type 1 |
Require adjustment of financial statement - (conditions did exist at balance sheet date and affect part of the financial statements |
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Subsequent Event - Type 2 |
Require disclosure but no adjustment -(conditions did not exist at the balance sheet date) |
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Audit procedures to search for subsequent events ( 5 options) |
Inquire of managment, Read internal F/S, Read minutes of meetings, Inquire of legal counsel, Examine general ledger |
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What does "Dual date" mean? |
Limits liability for the auditor (original date of the report plus the date of subsequent event) |
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Change the date |
Extends liability - BAD (Change the date on the audior's report to the date of the subsequent event |
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Final Analytical procedures |
Does everything look the way it should in the end based on the risk (financial and non-financial) |
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Management representation Letter |
Signed by management on last day of audit, lays out expectations and liabilities |
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Engagement Quality review |
Serves as fresh eyes on the audit, and reviewer must be partner. Opinion can only be issued if no deficiency exist |