case 12-07 Essay

1376 Words Sep 26th, 2014 6 Pages
Case 12-7
Facts: Rossi Inc.: Asbestos Litigation Liability: The cost of settlement and defensed costs relating to currently pending claims and future claims for losses incurred to date.
Liabilities recorded per/as at Dec 31.
2009
2008
2007
Rossi Inc.
$962m
$1,055m
$469m
Thompson (External Specialist)
$1124m
$1,055m

Internal Actuarial Specialist
$907m, $1,184m, and $1,514m

The 2007 claim estimate is projected through 2011. The 2008 and 2009 estimate are projected through 2017.
During 2009: The reserve is reduced by payment, but no addition; Higher mesothelioma settlement amounts (Est. 29k vs Act.34K); Higher legal expenses due to: 1. More aggressive approach and use of experts (many + verdicts); 2. martin, Smith, and
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According to the AU 337, a letter of audit inquiry to the client’s lawyer is the auditor’s primary means of obtaining corroboration of the information furnished by management concerning litigation, claims, and assessments. In the letter, the auditor should include all the pending asbestos litigation claims, as well as all probable future asbestos claims that would have an unfavorable outcome, that the lawyer has been or will be engaged in. Additionally, the auditor should request Rossi’s lawyer to confirm their understanding that, by exercising professional responsibility, they should inform the client that these possible claims or assessments should be disclosed in accordance with ASC 450.
3. Based on AU 342, the audit partner should evaluate the reasonableness of accounting estimates, with an attitude of professional skepticism, considering both the subjective and objective factors. The audit partner should obtain an understanding of how management developed the estimate, review and test the process used by management to develop the estimate. When the auditor tests the management process, the auditor should consider additional key factors or alternative assumptions about the factors, evaluate whether the assumptions are consistent with each other. Finally, the partner should also inquire about any other plans, goals, and objectives

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