Question

You and your team have completed your fieldwork and have a handful of other considerations before you compete the audit and issue your report. These activities are designed to ensure nothing significant has occurred between the completion of your fieldwork and the issuing of the audit report. You are assigned as a senior on the staff, in line to be promoted to manager, to instruct the other staff on the importance of considering contingent liabilities, letters from client lawyers, and subsequent events. Create a 10- to 12-slide presentation for the staff. Explain the importance of reviewing for contingent liabilities and subsequent events. Describe the requirements for reviewing for contingent liabilities and subsequent events.

Answer 1

Sir

I would be glad to answer this question in some practical aspect I skipping the technical part of the same because it may vary from region to region because the USA have IFRS Europe have IAS and India have its Accounting Standards to deal with the same.

Contingent Liability

Definition

1. A possibility liability on the occurrence of an uncertain event.
2. Liability is ensured but the amount cannot be ascertained now.

Example

• In mobile manufacturing normally there are more than 100 patent reserved by different people across the globe need to be taken in some cases they skip a few of them and faces lawsuits causes an uncertain outflow of money need a disclosure in books of accounts as a contingent liability.

Requirement

• Google Recently Penalized by the EU by 5 Billion dollars by appeal in higher authority if higher authority upheld the decision than it may cause in the significant finance health issues to the company not as big as the cause in the going concern but still very huge so it's very significant to review it.

Subsequent Event

Definition

1. Events held after Balance Sheet Date but before Signing of the Balance sheet by auditor or Board of Directors or any other authority as per the respective law of the land.
2. These may be favorable or unfavorable.
3. But the Possibility of their occurrence held in balance sheet date.

What is a Subsequent Event?

• The purposed dividend which will be finalized only after shareholders meeting but the possibility is very much on balance sheet date.
• Any lawsuit which hearing is completed but the decision is about to come after balance sheet date.

What is not a Subsequent Event?

• Fire held in godown cause damage is not a subsequent event because it's possibly not held on balance sheet date.

Requirement

• The purpose of this to account for the event in the there respective financial year e.g. if the dividend purpose last year than it will be the expense or last year for business funds just because of outflow funds in current year not the necessary expense of current year.