Question

Auditing and Assurance Services: An Integrated Approach, Ch. 24

In this chapter, focus on the following explaing the following

Presentation and Disclosures

Contingent Liabilities

Subsequent events

Answer 1

Presentation and Disclosures:

The presentation of Financial Statements which is represented in IAS 1sets out the overall requirements for financial statements, which states how they should be organised or structured, what are the minimum requirements for their content and overriding concepts such as going concern, the accrual basis of accounting and the current/non-current distinction. According to this standard, there should be a complete set of financial statements including statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity and a statement of cash flows. It is important to look that the financial statements must "present fairly" the financial position, financial performance and cash flows of an entity. To have fair presentation of financial statements, there should be the faithful representation of the effects of transactions, other events, and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework.

Disclosures are also referred as the notes to the financial statement that present all those information which cannot be included or presented in income statement, balance sheet, statement of cash flows and statement of changes in equity. Few examples of Disclosures are as follows :

- presentation of information relateded to the preparation of the financial statements and the specific accounting policies used

- disclosure of any information required by IFRSs that is not included or stated any other place in the financial statements

- to provide additional information that is not stated anywhere in the financial statements but it is relevant to preparation and understanding of financial statements.

Contingent liabilities :

A contingent liability is referred as a potential liability which may or may not occur and that depends on the result of an uncertain future event. The relevance of a contingent liability is associated with the probability of the contingency, its timing, and the accuracy with which the amount associated with it can be estimated. It is recorded in the accounting records if the contingency is probable and the related amount can be estimated with reasonable accuracy. The example of a contingent liability includes a product warranty.Both GAAP and IFRS require companies to record contingent liabilities

Subsequent events:

an event that occurs after a reporting period, but before the financial statements for that period have been issued or are available to be issued is called a subsequent event. The disclosure of such events in an organization's financial statements depending on the situation. GAAP states that the financial statements should include the effects of all subsequent events that provide additional information about conditions in existence as of the balance sheet date.