Chapter 17 - Completion Of The Audit

Front 1

Contingent Liabilities

Back 1

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.

Front 2

Examples of Contingent liabilities

Back 2

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

Front 3

Probable

Back 3

The future event is likely to occure

Front 4

Reasonably possible

Back 4

the chances of the future event occurring is more than remote but less than likely

Front 5

Remote

Back 5

the chance of the future event occurring is slight

Front 6

How does the auditor identify contingent liabilities?

Back 6

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

Front 7

Subsequent Event (Timeline)

Back 7

After Financial statement date, but before auditor report is issued

Front 8

Subsequent Event - Type 1

Back 8

Require adjustment of financial statement -

(conditions did exist at balance sheet date and affect part of the financial statements

Front 9

Subsequent Event - Type 2

Back 9

Require disclosure but no adjustment -(conditions did not exist at the balance sheet date)

Front 10

Audit procedures to search for subsequent events ( 5 options)

Back 10

Inquire of managment,

Read internal F/S,

Read minutes of meetings,

Inquire of legal counsel,

Examine general ledger

Front 11

What does "Dual date" mean?

Back 11

Limits liability for the auditor (original date of the report plus the date of subsequent event)

Front 12

Change the date

Back 12

Extends liability - BAD (Change the date on the audior's report to the date of the subsequent event

Front 13

Final Analytical procedures

Back 13

Does everything look the way it should in the end based on the risk (financial and non-financial)

Front 14

Management representation Letter

Back 14

Signed by management on last day of audit, lays out expectations and liabilities

Front 15

Engagement Quality review

Back 15

Serves as fresh eyes on the audit, and reviewer must be partner. Opinion can only be issued if no deficiency exist