Chapter _17, Completing the Audit

Chapter _17, Completing the Audit - ACCY 360/560: Assurance...

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ACCY 360/560: Assurance Services "Completing the Engagement" Chapter #17 I. Review for contingencies -- general comments A. Definition --"an existing condition, situation or circumstance involving uncertainty as to possible gain or loss . . . that will ultimately be resolved when one or more future events occur or fail to occur." B. Focus on losses due to "conservatism" C. General rules (GAAP) specified by SFAS #5 1. Auditor's concern is primarily discovering their existence in the first place (since contingencies are usually unrecorded) 2. Considerations once existence is detected a. Accrual required when loss is "probable" & amount is reasonably estimable b. Disclosure only required when loss is at least "reasonably possible" (whether estimable or not) D General audit procedures -- note that classic example is litigation (discussed below) 1. Inquiries 2. Read minutes of board meetings 3. Review important contracts, loan agreements, leases, etc. 4. Standard bank confirmation applies, too II. Obtain "lawyer's letter" (sometimes called the "attorney's representation letter”) A. Professional guidance provided by a Statement on Auditing Standards entitled, "Inquiry of a Client's Lawyer Concerning Litigation, Claims, & Assessments" [issued 1976] B. Send to all attorneys who rendered significant services to the client in the current year (or after year-end) identify by vouching large charges to "Legal & Professional Fees" expense account C. Refusal of client's attorney to respond constitutes a major scope limitation
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D. Client's letter should ask attorney to comment about 2 categories of issues
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This note was uploaded on 04/22/2011 for the course ACCY 360 taught by Professor T during the Spring '08 term at Northern Illinois University.

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Chapter _17, Completing the Audit - ACCY 360/560: Assurance...

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