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Chapter 18

Management and Organizational Studies 3363A/B Chapter Notes - Chapter 18: Contingent Liability, Costs In English Law, Internal Control

Management and Organizational Studies
Course Code
MOS 3363A/B
Michelle Loveland

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Chapter 18 Completing the Audit
(Step 1) Perform Additional Tests for Presentation and Disclosure
Main concern; whether or not management has disclosed everything
(Step 2) Review for Contingent Liabilities and Commitments
Concerned with completeness, classification, and valuation of presentation audit
Contingent liability a potential future obligation to an outside party for an
unknown amount resulting from activities that have already taken place
Three conditions for a contingent liability to exist
1. There is a potential future payment to an outside party or the impairment of
an asset that resulted from an existing condition;
2. There is uncertainty about the amount of the future payment or impairment;
3. The outcome will be resolved by some future event
The auditors objective in verifying contingent liabilities are,
o Evaluate the accounting treatment of contingent liability to determine
whether management has properly classified the contingency
o Evaluate the reasonableness of management’s estimate of the contingent
liability (valuation); and
o Identify any contingencies not already identified (completeness).
Examples of audit procedures,
o Inquire of management regarding the possibility of unrecorded
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