Module 92 Assignment

REVIEW QUESTIONS
17-1.
A contingent liability is defined as an existing condition or set of circumstances involving
uncertainty about a possible loss that will ultimately be resolved when some future event occurs
or fails to occur.
The three categories of contingencies are:
a) Probable The chance of an event is likely to occur.
b) Reasonably possible The chance of event occurring is more than remote but less than
likely.
c) Remote The chance of future event occurring is slight.
The Examples of contingencies are:
a) Pending or threatened litigations.
b) Actual or possible claims and assessments.
c) Income tax disputes.
d) Product warranties are defects.

17-2.
The auditor asks the attorney to provide the following information on pending or threatened
litigation:
a) A list of any pending or probable litigation or any probable but, yet unasserted claims to
which the attorney has developed substantial attention or for which an unfavorable
outcome is reasonably possible.
b) A request that the attorney describe and evaluate each pending or threatened litigation,
this includes progress of the case, action the entity plans to take, likelihood of
unfavorable outcome and the amount or range of potential loss.
c) A request that the attorney identify any pending or threatened litigation or claims not
included in managements list or a statement that the list is complete.
d) A request that the attorney comment on unasserted claims where his or her views differ
from managements evaluation.
e) A request that the attorney indicate if his or her response is limited in any way and the
reasons for such limitations.

17-5.
An auditor dual dates an audit report when a subsequent event is recorded or disclosed in
financial statements after the date on which the auditor has obtained sufficient appropriate audit
evidence but before the issuance of the financial statements. Dual dating is intended to limit the
auditors responsibility for events occurring subsequent to the date on which the auditor has
obtained sufficient appropriate evidence to only the specific subsequent event referred to in the
footnote.

17-8.
The engagement quality reviews are essential by review partners as they provide an independent
and objective review on the engagement. The reviewer performs an objective evaluation of the
significant judgements made by the engagement team and the conclusions reached in formulating
the auditors report. Lastly, they also assess the appropriateness of the auditors report.

17-11.
The items that are to be included in the auditors communication with those charged with
governance are:
a) The auditors responsibility under GAAS or under the standards of the PCAOB if the
client is public.
b) An overview of the planned scope and timing of the audit.
c) Significant findings from audit.

MULTIPLE CHOICE
17-13. c
17-14. d
17-15. c
17-16. b
17-17. a
17-18. a
17-19. a
17-20. a
17-21. c

PROBLEM
17-24.
a) The general types of subsequent events that require Namikis consideration and
evaluation are:
Events that provide additional evidence about conditions that existed at the date of
the balance sheet and affect the estimates that are part of the financial statement
preparation process.
Events that provide evidence about conditions that did not exist at the date of the
balance sheet but that arose subsequent to that date.

b) The auditing procedures that Namiki should consider performing to gather evidence
concerning subsequent events are:
Namiki should consider asking the management whether there were or are any
substantial contingent liabilities or commitments existing at the balance sheet date
or at the date of enquiry.
Should ask whether there have been any significant changes in capital stock, long-
term debt or working capital.
Considering the status of any items in the financial statements that were
accounted for based on preliminary or inconclusive data.
Should check for any unusual adjustments that might have been made during the
subsequent events period.
Namiki should read the interim financial statements for the period after year-end
and compare them to the prior period statements.
Examine the books of original entry for subsequent events period and investigate
any unusual transactions.
Read the available minutes of meetings of stockholders, directors or other
committees for the subsequent events period.
Should consider asking legal counsel about nay litigations, claims or assessments
against the company.