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Unformatted text preview: CHAPTER 24 Multiple-Choice Questions 1. easy d Which of the following is not a condition for a contingent liability to exist? a. There is a potential future payment to an outside party that would result from a current condition. b. There is uncertainty about the amount of the future payment. c. The outcome of an uncertainty will be resolved by some future event. d. The amount of the future payment is reasonably estimable. 2. easy b If a potential loss on a contingent liability is remote, the liability should be a. disclosed in footnotes, but not accrued. b. neither accrued nor disclosed in footnotes. c. accrued and indicated in the body of the financial statements. d. disclosed in the auditors report but not disclosed on the financial statements. 3. easy c Which of the following is an incorrect combination of the likelihood of occurrence and financial statement treatment? a. Remote no disclosure. b. Probable (amount is estimable) financial statements are adjusted. c. Reasonably possible (amount is estimable) financial statements are adjusted. d. Probable (amount is not estimable) footnote disclosure is required. 4. easy d At 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. management letter. b. letter of inquiry. c. letters testamentary. d. letter of representation. 5. easy c The responsibility for identifying and deciding the appropriate accounting treatment for contingent liabilities rests with _____. a. a companys auditors. b. a companys legal counsel. c. a companys management. d. a companys management and their auditors. 6. easy d The auditor has a responsibility to review transactions and activities occurring after the year-end to determine whether anything occurred that might affect the valuation or disclosure of the statements being audited. The auditing procedures required to verify these transactions are commonly referred to as the review for a. contingent liabilities. b. subsequent years transactions. c. late unusual occurrences. d. subsequent events. 7. easy c Audit procedures related to contingent liabilities are initially focused on a. presentation and disclosure. b. completeness. c. existence. d. rights and obligations. 24-1 8. easy c Which of the following audit procedures is least likely to be used as part of the auditors attempt to identify potential contingent liabilities? a. Inquire of management about the potential for unrecorded liabilities. b. Review the minutes of directors meetings for indication of lawsuits or other contingencies. c. Review of personnel files for evidence of potential employment lawsuits....
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- Spring '11