AUDIT FINAL - AUDIT FINAL CHAPTER 17 Contingent Liabilities...

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AUDIT FINAL CHAPTER 17 Contingent Liabilities – an existing condition where a loss could be incurred in the future because of the resolution of a future event. o FASB No. 5 - Can recognize loss when (1) Probable and (2) Estimatable. o Types of Contingent Liabilities: Lawsuits Warranties Guarantees Tax Disputes Commitments – require doing something in the future. Require disclosure. o Types of Commitments: Contracts (Purchase Commitment, Sales Commitment) Futures Contract Leases Loans Legal Letters – an audit inquiry sent to the client’s attorney in order to obtain information about litigation, claims, and assessments. o Format: Subsequent Events – events/transactions occurring after the Balance Sheet date but before the issuance of Financial Statements. o Type I Event – an event that provides additional evidence about a condition(s) that existed at the date of the Balance Sheet and affects the estimates that are part of the financials. Examples: Uncollectible account receivable Settlement of a lawsuit/tax case Requires an adjustment to the financials. o Type II Event – an event that provides evidence about conditions that did not exist at the date of the Balance Sheet, but are subsequent to that date. Examples: Purchase or disposal of a business segment by the entity. Sale of a capital stock or bond issue by the entity. Loss from natural disaster. Requires a disclosure.
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This note was uploaded on 04/09/2008 for the course ACCT Audit taught by Professor Druger during the Fall '06 term at Augustana.

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AUDIT FINAL - AUDIT FINAL CHAPTER 17 Contingent Liabilities...

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