Auditing & Assurance Services: A Systematic Approach (Irwin Accounting)
10th Edition
ISBN: 9780077732509
Author: William F Messier Jr, Steven M. Glover Associate Professor, Douglas F. Prawitt Associate Professor
Publisher: McGraw-Hill Education
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Chapter 17, Problem 17.22P
To determine
Concept Introduction:
To discuss:The audit procedure that CPA should follow with respect to the existence of loss contingence arising from litigation, claims, and assessment
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Students have asked these similar questions
Concerning litigation, claims, and assessments, which of the following is an audit procedure that an auditor
Concerning litigation, claims, most likely would perform ?
Select one:
a. Confirm directly with the client’s lawyer that all litigation, claims, and assessments have been recorded or disclosed in the financial statements.
b. Discuss with management its policies and procedures adopted for evaluating and accounting for litigation, claims, and assessments.
c. Request the client’s lawyer to evaluate whether the client’s pending litigation, claims, and assessments indicate a going concern problem.
d. Examine the legal documents in the client’s lawyer’s possession concerning litigation, claims, and assessments to which the lawyer has devoted substantive attention.
(a) You are an audit engagement manager of a public listed client of Walter & Co. The
audit senior has informed you that they have completed significant audit procedures
for the final audit of this client. However, after your review of the currnt audit files,
you noticed that they have not performed the audit procedures for searching contingent
liabilities.
Required:
(i) Define contingent liability and state the THREE (3) conditions that are required
for a contingent liability to exist.
(ii) Elaborate any FOUR (4) audit procedures commonly used to search for contingent
liabilities.
The primary reason auditors request responses to attorney letters is to provide auditorsa. The probable outcome of asserted claims and pending or threatened litigation.b. Corroboration of the information furnished by management about litigation, claims, and assessments.c. The attorney’s opinions of the client’s historical experiences in recent similar litigation.d. A description and evaluation of litigation, claims, and assessments that existed at the date of the financial statements.
Chapter 17 Solutions
Auditing & Assurance Services: A Systematic Approach (Irwin Accounting)
Ch. 17 - Prob. 17.1RQCh. 17 - Prob. 17.2RQCh. 17 - Prob. 17.3RQCh. 17 - Prob. 17.4RQCh. 17 - Prob. 17.5RQCh. 17 - Prob. 17.6RQCh. 17 - Prob. 17.7RQCh. 17 - Prob. 17.8RQCh. 17 - Prob. 17.9RQCh. 17 - Prob. 17.10RQ
Ch. 17 - Prob. 17.11RQCh. 17 - Prob. 17.12RQCh. 17 - Prob. 17.13MCQCh. 17 - Prob. 17.14MCQCh. 17 - Prob. 17.15MCQCh. 17 - Prob. 17.16MCQCh. 17 - Prob. 17.17MCQCh. 17 - Prob. 17.18MCQCh. 17 - Prob. 17.19MCQCh. 17 - Prob. 17.20MCQCh. 17 - Prob. 17.21MCQCh. 17 - Prob. 17.22PCh. 17 - Prob. 17.23PCh. 17 - Prob. 17.24PCh. 17 - Prob. 17.25PCh. 17 - Prob. 17.26PCh. 17 - Prob. 17.27PCh. 17 - Prob. 17.28P
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Similar questions
- 21)An audit engagement letter A.May not be prepared each period for a recurring audit engagement B.Is prepared for the benefit of the audit, audit client and general public C.Shall include specific audit procedures to be performed by the auditor D.Is usually sent by auditor to the client upon the commencement of the audit 22)The engagement letter A.Can affect legal responsibility to the client B.Can be used to alter the auditor’s responsibilities under the standards on auditing C.Is used only if it is an engagement, but has no effect for review or compilation services D.Affects the CPA firm’s responsibility to external users of audited financial statements 23)Which of the following is notinvolved during pre-planning phase? A.Obtaining information about client’s legal obligation B.Obtaining an engagement letter C.Selecting staff for engagement D.Deciding whether to accept or continue an audit engagement 24)Which of the following matters is least likely to be discussed in an…arrow_forwardThe primary reason an auditor requests that letters of inquiry be sent to a client's attorney is to provide the auditor with A description and evaluation of litigation, claims, and assessments that existed at the balance sheet date The attorneys' opinions of the client's historical experiences in recent similar litigation, The probable outcome of asserted claims and pending or threatened litigations Corroboration of the information furnished by management about litigation, claims, and assessmentsarrow_forwardThe scope of an audit is not restricted when an attorney letter limits the response toa. Matters to which the attorney has given substantive attention in the form of legalrepresentation.b. An evaluation of the likelihood of an unfavorable outcome of the matters disclosed bythe entity.c. The attorney’s opinion of the entity’s historical experience in recent similar litigation.d. The probable outcome of asserted claims and pending or threatened litigationarrow_forward
- If the auditor verifies a debtor’s account balance, which is comprised of a number of transactions, at the end of the financial period by sending a debtor’s confirmation request, this is an example of a Select one: A. substantive test of transactions B. test of controls C. substantive analytical procedure D. substantive test of balancesarrow_forwardThe auditor has considerable responsibility for notifying users as to whether or not the statements are properly stated. Considering the objective of PSA 200, this imposes upon the auditor a duty to Select one: a. be an insurer of the fairness in the statements. b. provide reasonable assurance that material misstatements will be detected. c. be equally responsible with management for the preparation of the financial statements. d. be a guarantor of the fairness in the statements.arrow_forwardWhen asked to perform an audit to express an opinion on one or more specified elements,accounts, or items of a financial statement, the auditor(1) may not describe auditing procedures applied.(2) should advise the client that the opinion can be issued only if the financial statements have been audited and found to be fairly presented.(3) may assume that the first standard of reporting with respect to GAAP does not apply.(4) should comply with the request only if they constitute a major portion of the financialstatements on which an auditor has disclaimed an opinion based on an audit.arrow_forward
- Elizabeth Johnson, CPA, has completed the audit of notespayable and other liabilities for Valley River Electrical Services and now plans to auditcontingent liabilities and commitments.a. Distinguish between contingent liabilities and commitments and explain why bothare important in an audit.b. Identify three useful audit procedures for uncovering contingent liabilities thatJohnson will likely perform in the normal conduct of the audit, even if she had noresponsibility for uncovering contingencies.c. Identify three other procedures Johnson is likely to perform specifically for the purpose of identifying undisclosed contingencies to help her obtain evidence about thecompleteness presentation and disclosure objective.arrow_forwardCorrective action has been taken by an auditee immediately after the identification of a reportable finding. The IS auditor should: () include the finding in the final report. because the IS auditor is responsible for an accurate report of all findings () include the finding in the closing meeting for discussion purposes only () not include the finding in the final report. because corrective action can be verified by the IS auditor during the audit () not include the finding in the final report. because the audit report should include only unresolved findingsarrow_forwardAt the completion of the audit, management is asked to make a written statement that it is not aware of any undisclosed contingent liabilities. This statement would appear in the: a. Engagement letter. b. Management letter. c. Management representation letter. d. Legal representation letter.arrow_forward
- A CPA audits the financial statements of an issuer. Which statement relating to CAMs is TRUE? a. If the auditor determines that no CAMs existed, the audit report includes a paragraph defining CAMs and stating that no Cams existed. b. CAMs are not required to be communicated to the TCWG (Audit Committee). c. CAMs usually alter the opinion on the financial statements. d. CAMs involve matters of most significance to the audit. e. The paragraph discussing a discovered CAM should not include how the CAM was addressed in the audit.arrow_forwardUnder preconditions of an audit, the management shall provide the auditor with the following, except: Group of answer choices b. Additional information that the auditor may request from management for the purpose of the audit d. All the above are concerns that management need to provide c. Unrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence. a. Access to all information of which management is aware that is relevant to the preparation of the financial statements such as records, documentation and other matters;arrow_forwardWhich one of the following is other indicator or events or conditions that may cast significant doubt continue as a going concern? the entity's ability If the auditor found misstatements in financial statements resulting from fraud, the auditor encounters exceptional circumstances that bring into question his ability to continue performing the audit. the auditor shall : Ask the management for his withdrawal. Determine the professional and legal responsibilities applicable in the circumstances. Withdraw from the engagement immediately. Report to audit team regarding withdrawal. If the auditor identify and assess the risk of material misstatement due to fraud or error relating entity's related activities auditor shall: 1. Inquiry with management and others within the entity. Auditing ENarrow_forward
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