Explain the difference between the contingent liabilities and commitments. Also, explain the importance of both in an audit.

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Answer 1

Question

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 24, Problem 24DQP

a.

To determine

Explain the difference between the contingent liabilities and commitments. Also, explain the importance of both in an audit.

b.

To determine

List the three useful audit procedures that would be perform by the Person J during the audit program, even if Person J does not have responsibility for uncovering contingencies.

c.

To determine

List the other three other procedures that person J would likely to perform specifically for the purpose of identifying undisclosed contingencies that would helps in obtaining evidence about the presentation audit objective.

d.

To determine

List the three useful audit procedures for uncovering commitments that Person J would likely to perform as a part of the audit in other accounts.

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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.

As part of the audit of different audit areas, auditors should bealert for the possibility of unrecorded liabilities. For each of the following audit areas oraccounts, describe a liability that can be uncovered and the audit procedures that canuncover it:a. Minutes of the board of directors meetings e. Cash surrender value of life insuranceb. Land and buildings f. Cash in the bankc. Rent expense g. Officers’ travel and entertainmentd. Interest expense expenses

Indicate whether you agree or disagree with the following statements and explain your reasoning. Teresa Dziuba was assigned to the Heathcliff Energy audit. She was ensuring that when recognizing revenues, all transactions and events that should have been recorded have been recorded. She was testing the existence assertion. Assume materiality for the financial statements as a whole is $200,000 and performance materiality for accounts receivable is set at $80,000. If the auditor finds one receivable that is overstated by $110,000, the auditor can ignore the error as it is less than $200,000 (overall materiality). Steve Slopak, the group partner was reviewing the work of Manny Fernandez on the Lake Shore Gold account. Manny asked Steve for an explanation on how audit risk_ould affect his work. Steve answered: “Audit risk affects the quantity and quality of evidence gathering."

Answer 2

Question

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 24, Problem 24DQP

a.

To determine

Explain the difference between the contingent liabilities and commitments. Also, explain the importance of both in an audit.

b.

To determine

List the three useful audit procedures that would be perform by the Person J during the audit program, even if Person J does not have responsibility for uncovering contingencies.

c.

To determine

List the other three other procedures that person J would likely to perform specifically for the purpose of identifying undisclosed contingencies that would helps in obtaining evidence about the presentation audit objective.

d.

To determine

List the three useful audit procedures for uncovering commitments that Person J would likely to perform as a part of the audit in other accounts.

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Answer 3

Question

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 24, Problem 24DQP

a.

To determine

Explain the difference between the contingent liabilities and commitments. Also, explain the importance of both in an audit.

b.

To determine

List the three useful audit procedures that would be perform by the Person J during the audit program, even if Person J does not have responsibility for uncovering contingencies.

c.

To determine

List the other three other procedures that person J would likely to perform specifically for the purpose of identifying undisclosed contingencies that would helps in obtaining evidence about the presentation audit objective.

d.

To determine

List the three useful audit procedures for uncovering commitments that Person J would likely to perform as a part of the audit in other accounts.

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Answer 4

Question

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 24, Problem 24DQP

a.

To determine

Explain the difference between the contingent liabilities and commitments. Also, explain the importance of both in an audit.

b.

To determine

List the three useful audit procedures that would be perform by the Person J during the audit program, even if Person J does not have responsibility for uncovering contingencies.

c.

To determine

List the other three other procedures that person J would likely to perform specifically for the purpose of identifying undisclosed contingencies that would helps in obtaining evidence about the presentation audit objective.

d.

To determine

List the three useful audit procedures for uncovering commitments that Person J would likely to perform as a part of the audit in other accounts.

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Answer 5

Chapter 24, Problem 24DQP

a.

To determine

Explain the difference between the contingent liabilities and commitments. Also, explain the importance of both in an audit.

b.

To determine

List the three useful audit procedures that would be perform by the Person J during the audit program, even if Person J does not have responsibility for uncovering contingencies.

c.

To determine

List the other three other procedures that person J would likely to perform specifically for the purpose of identifying undisclosed contingencies that would helps in obtaining evidence about the presentation audit objective.

d.

To determine

List the three useful audit procedures for uncovering commitments that Person J would likely to perform as a part of the audit in other accounts.

Answer 6

Chapter 24, Problem 24DQP

a.

To determine

Explain the difference between the contingent liabilities and commitments. Also, explain the importance of both in an audit.

Answer 7

Chapter 24, Problem 24DQP

a.

To determine

Explain the difference between the contingent liabilities and commitments. Also, explain the importance of both in an audit.

Answer 8

b.

To determine

List the three useful audit procedures that would be perform by the Person J during the audit program, even if Person J does not have responsibility for uncovering contingencies.

Answer 9

b.

To determine

List the three useful audit procedures that would be perform by the Person J during the audit program, even if Person J does not have responsibility for uncovering contingencies.

Answer 10

c.

To determine

List the other three other procedures that person J would likely to perform specifically for the purpose of identifying undisclosed contingencies that would helps in obtaining evidence about the presentation audit objective.

Answer 11

c.

To determine

List the other three other procedures that person J would likely to perform specifically for the purpose of identifying undisclosed contingencies that would helps in obtaining evidence about the presentation audit objective.

Answer 12

d.

To determine

List the three useful audit procedures for uncovering commitments that Person J would likely to perform as a part of the audit in other accounts.

Answer 13

d.

To determine

List the three useful audit procedures for uncovering commitments that Person J would likely to perform as a part of the audit in other accounts.

Answer 14

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Answer 15

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Answer 16

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Answer 17

Ch. 24 - Prob. 1RQ Ch. 24 - Explain why an auditor is interested in a clients...Ch. 24 - Prob. 3RQ Ch. 24 - Prob. 4RQ Ch. 24 - Prob. 5RQ Ch. 24 - Prob. 6RQ Ch. 24 - Prob. 7RQ Ch. 24 - Prob. 8RQ Ch. 24 - What major considerations should the auditor take...Ch. 24 - Identify five audit procedures normally done as a...

Explain the difference between the contingent liabilities and commitments. Also, explain the importance of both in an audit.

Concept explainers

Explain the difference between the contingent liabilities and commitments. Also, explain the importance of both in an audit.

List the three useful audit procedures that would be perform by the Person J during the audit program, even if Person J does not have responsibility for uncovering contingencies.

List the other three other procedures that person J would likely to perform specifically for the purpose of identifying undisclosed contingencies that would helps in obtaining evidence about the presentation audit objective.

List the three useful audit procedures for uncovering commitments that Person J would likely to perform as a part of the audit in other accounts.

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Chapter 24 Solutions