Lesson 11.3 - Provisions, liabilities and contingent liabilities

Question 1

In terms of ISA501: Audit Evidence - Specific Considerations for Selected Items

What must the auditor due regarding litigation and claims (contingent liabilities)

Answer 1

ISA501 par 9

The auditor shall design and perform audit procedures in order to identify litigation and claims involving the entity which may give to risk of material misstatement, including:

a) Inquiry of management and, where applicable, others within the entity

b) Reviewing minutes of meetings and those charges with governance

c) Reviewing legal expense accounts

Question 2

Provide the definition of a provision in terms of IAS 37.

Answer 2

A liability of uncertain timing or amount

Question 3

Provide the definition of a liability in terms of IAS 37.

Answer 3

Liability - a present obligation of an entity arising from past events, the settlement of which is expected to result in an outflow of resources from the entity.

Question 4

Provide the definition of a contingent liability in terms of IAS 37.

Answer 4

A possible obligation that arises from past events, and the existence of which will be confirmed only by the occurrence or non-occurrence of an uncertain future event not wholly in the control of the entity

Question 5

In terms of ISA501, what are some audit procedures the auditor should perform to identify litigation and claims?

Answer 5

ISA501: Audit evidence - specific considerations par 9

a) Inquiry of management, including in house council
b) Reviewing minutes of meetings of those charges with governance
c) Reviewing legal expense accounts