BUS 426 Lecture Notes - Lecture 9: Contingent Liability, Analytical Review, Financial Statement
Cls are existing conditions or situation that will be resolved at some future time eg. lawsuit. How to search for cl: enquire of management, review minutes of shareholders. Board of director meetings: read contracts, agreements + related correspondence, legal inquiry most important. Legal inquiry = legal confirmation: confirmation letter in a specific format (fig. Requesting information about pending litigation or other relevant information with respect to legal claims. 2 categories of claims: outstanding or asserted claims. Client has been notified of the suit or the suit has already been filed: possible or unasserted claims. Client is aware of a situation that could lead to. Legal expenses claims: analysis to get indication of contingent liabilities, identify law firms where confirmations are required, identify events that need to be confirmed by law firms. Evaluate known contingent liabilities: once the cl has been identified and documented, then management"s disclosure of the cl needs to be evaluated, based on the likelihood of event.