Answered: While assisting the accounting…

Contemporary Auditing

11th Edition

ISBN:9781337650380

Author:KNAPP

Publisher:KNAPP

Chapter5: Ethical Responsibilities Of Independent Auditors

Section5.1: Cardillo Travel Systems, Inc.

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While assisting the accounting department with completing the current year's financial statements, you have been asked to review a list of contingent liabilities. How would a manager, review the list of contingent liabilities and determine their probability?

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.

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