University:
California State University, Northridge
Course:
ACCT 460 | Auditing Principles and Analytics
Academic year:

2013
Views:

254

Pages:

14
Author:

Rebecca Peterson

Completing the Audit Chapter 24 Part1 Learning Objective 1 Design and perform audit tests related to presentation and disclosure audit objectives. Presentation and Disclosure Audit Objectives (page 761) Occurrence and rights and obligations: Disclosed events and transactions have occurred and pertain to the entity. Completeness: All disclosures that should have been included in the financial statements have been included. Presentation and Disclosure Audit Objectives (page 761) Classification and understandability: Financial information is appropriately presented and described and disclosures are clearly expressed. Accuracy and valuation: Financial and other information are disclosed fairly and at appropriate amounts. Learning Objective 2 Conduct a review for contingent liabilities and commitments. Contingent Liabilities A contingent liability is a potential future obligation to an outside party for an unknown amount resulting from activities that have already taken place. Likelihood of Occurrence and Financial Statement Treatment Likelihood of Occurrence of Event Financial Statement Treatment Remote (slight chance) No disclosure is necessary Reasonably possible Footnote disclosure is necessary Probable (likely to occur) Adjust financial statements or note disclosure depending on amounts involved Auditor’s Concerns       Pending litigation for patent infringement, product liability, or other actions Income tax disputes Product warranties Notes receivable discounted Guarantees of obligations of others Unused balances of outstanding letters of credit 24 - 8 Audit Procedures for Finding Contingencies Inquire of management about the possibility of unrecorded contingencies. Review current and previous years’ internal revenue reports for income tax settlements. Review the minutes of directors’ and stockholders’ meetings for indications of lawsuits or other contingencies. 24 - 9 Audit Procedures for Finding Contingencies Analyze legal expenses and review invoices and statements from legal counsel. Obtain a letter from each major attorney of the client as to the status of pending litigation. Review audit documentation for any information that may indicate a potential contingency. Examine letters of credit in force. 24 - 10 Learning Objective 3 Obtain and evaluate letters from the client’s attorneys. Inquiry of Client’s Attorneys A list including: (1) pending threatened litigation and (2) asserted or unasserted claims or assessments with which the attorney has had involvement. A request that the attorney furnish information or comment about the progress of each item listed. Inquiry of Client’s Attorneys A request of the law firm to identify any unlisted pending or threatened legal actions or a statement that the client’s list is complete. A statement informing the attorney of the attorney’s responsibility to inform management of legal matters requiring disclosure in the financial statements and to respond directly to the auditor. Sarbanes-Oxley Act Congress included provisions in this act directing the SEC to issue rules requiring attorneys serving public companies to report material violations by the company of federal securities laws. The American Bar Association amended its attorney-client confidentiality rules to permit attorneys to breach confidentiality if a client is committing a crime or fraud.