Answered: A certain contingent liability was…

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter17: Other Services Provided By Audit Firms

Section: Chapter Questions

Problem 20MCQ

See similar textbooks

Related questions

Concept explainers

Question

A certain contingent liability was evaluated at year-end, and considered to have a reasonable possibility of becoming an actual liability. If the accountant decided not to report it in the notes to the financial statement, what effect would this have on the financial reporting of the company?

A	The liabilities on the balance sheet would be understated
B	The information about the item would be inadequately disclosed in the notes
C	The net income of the company would be understated
D	There would be no effect

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Expert Solution

Step 1

Contingent liabilities are the liabilities that may or may not be happened in the future and it would be dependent on certain event. And it is said to be reasonably possible when the probability of the event is more than remote but less that likely.

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Audit procedures for items of Financial Statement

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions