Exam (elaborations)
Solutions for Audit - Chapter 17 (15th Canadian Edition Arens)
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Solutions for Audit - Chapter 17 (15th Canadian Edition Arens)
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Solutions for Audit - Chapter 17 (15thCanadian Edition Arens)
contingent liability - ANSis a potential future obligation to an outside party for an unknown
amount resulting from activities that have already taken place.
3 conditions required for a contingent liability to exist - ANS1. there is a potential future payment
to an outside party or the impairment of an asset that resulted from an existing condition. 2.
there is uncertainty about the amount of the future payment or impairment. 3. The outcome will
be resolved by some future event or events.
Contingent Liability Classification - ANSthe objective of evaluating the accounting treatment of
known contingent liabilities to determine whether management has properly classified the
contingency.
Contingent Liability Valuation - ANSthe objecting of evaluating the reasonableness of
management's estimate of the contingent liability
Contingent Liability Completeness - ANSthe objective of identifying, to the extent practical, any
contingencies not already identified by management
First step in audit of contingencies - ANSto determine whether any contingencies exist
(occurrence and presentation assertions)
Commitments - ANSclosely related contingent liabilities (agreement to commit the firm to a set
of fixed conditions in the future, regardless of what happens to profits or the economy as a
whole)
Legal inquiry letter - ANSa letter addressed to the client's legal counsel (in-house, and/or
external), asking for known litigation or other claims against the client that is relevant for
financial statement disclosure.
Outstanding claim - ANSexists when a suit has been brought or when the client has been
notified that suit will be brought
Unasserted claim - ANSexists when no suit has been filed but is possible.
Subsequent Events - ANSevents occurring between the date of the financial statements and the
date of the auditor's report
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