Going concern, litigation, contingent liabilities and other special considerations Flashcards
Name one procedure an auditor would perform to determine if there are any contingent liabilities.
An auditor can review / read the minutes from the board of director’s meetings.
Inadequate disclosure of a substantial doubt about the client’s ability to continue as a going concern is a departure from GAAP and will result in what kind of opinion?
Not properly disclosing the auditor’s doubt that the company can continue business (going concern) will result in either a qualified or adverse opinion.
Inquiring about an entity’s legal counsel about litigation, claims, and assessments can show the auditor what?
Asking the entity’s legal counsel to disclose pending litigation or other liabilities can help an auditor assess whether the liability would be big enough to create substantial doubt about the entity’s going concern.
In what scenario would and auditor issue an unmodified opinion with regard to pending litigation disclosure?
An auditor would issue a unmodified opinion if the law firm is uncertain about the chances of the lawsuit having a material effect on the financial statements and that it is properly disclosed in the financial statements.
If the law firm states that it is probable that the entity will owe money due to litigation, what should the auditor do?
If it is probable then the auditor should request that the entity record the liability in the financial statements.
If the entity’s disclosure is deemed inadequate regarding its ability to continue as a going concern, the auditor may issue a…
An auditor may issue an “except for” qualified opinion if management’s disclosure were insufficient.
What are some (name 4) plans that an entity can do to mitigate the possibility they might go out of business?
If an entity is facing a issues of going concern, they can appease the auditor by:1) postponement of expenditures 2) dispose of assets 3) borrow money or restructure debt 4) sell stock to get money
