Professional Documents
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Review For Contingent Liabilities
Review For Contingent Liabilities
Probable: The future event is likely to occur. Reasonably Possible: The chances of the future event occurring is more than remote but less than probable. Remote: The chance of the future event occurring is slight.
LO# 2
Review income tax liability, tax returns, and IRS agents reports.
17-2
LO# 2
Obtain a legal letter that describes and evaluates any litigation, claims, or assessments.
Obtain written representation from management that all litigation, asserted and unasserted claims, and assessments have been disclosed in accordance with FASB No. 5.
17-3
LO# 3
Legal Letters
A letter of audit inquiry (a legal letter) sent to the clients attorneys is the primary means of obtaining or corroborating information about litigation, claims, and assessments.
17-4
LO# 4
Commitments
Long-term contracts to purchase raw materials or sell their products at a fixed price.
Long-term commitments are usually identified through inquiry of client personnel during the audit of the revenue and purchasing processes. In most cases, such commitments are disclosed in a footnote to the 17-5 financial statements.
LO# 5
Type II Event Conditions did not exist at the balance sheet date.
Require disclosure and possibly pro forma financial statements.
17-6
LO# 5
17-7
LO# 6
Dual Dating
When a subsequent event is recorded or disclosed in the financial statements after the date on which the auditor has obtained sufficient appropriate audit evidence but before the issuance of the financial statements, the auditor must consider the following options for dating of the auditors report: (1) Dual date the report (limits liability) (2) Use the date of the subsequent event.
17-8
LO# 7
LO# 7
Review of Subsequent Events for Audit of Internal Control over Financial Reporting
Auditors of public companies are responsible to report on any changes in internal control that might affect financial reporting between the end of the reporting period and the date of the auditors report.
17-10
LO# 8
Evaluation of financial statement presentation and disclosure. Obtain an independent review of the engagement.
17-11
LO# 8
17-12
LO# 8
Retain audit documentation for 7 years from the date of completion of the
engagement, as indicated by the date of the auditors report, unless a longer period of time is required by law.
Retain all documents that form the basis of the audit or review. Include in the audit file for significant matters any document created,
sent, or received, including documents that are inconsistent with a final conclusion. Significant changes in audit plans or conclusions must also be documented.
17-13
LO# 9
17-14
LO# 9
LO# 9
17-16
LO# 10
Auditors are required to communicate to those charged with governance certain matters related to the conduct of the audit.
Auditors responsibility under GAAS. Significant audit adjustments. Consultation with other accountants. Significant accounting policies. Auditors judgments about the quality of the entitys accounting principles. Major issues discussed with management before the auditor was retained. Management judgments and accounting estimates. Disagreements with management. Difficulties encountered during the audit.
Fraud involving senior management and fraud that causes material misstatement of the financial statements.
17-17
LO# 11