Question

What are the audit procedures for identifying contingent liabilities?

Answer 1

audit procedures commonly used to identifying contingent liabilities
1) inquire of management (orally and in writing) about the possibility of unrecorded contingencies
2) review current and previous years' internal revenue agent reports for income tax settlements
3) review the minutes of directors' and stockholders' meetings for indications of lawsuits or other contingencies
4) analyze legal expense for the period under audit and review invoices and statements from legal counsel for indications of contingent liabilities, especially lawsuits and pending tax assessments
5) obtain a letter from each major attorney performing legal services for the client as to the status of pending litigation or other contingent liabilities
6) review audit documentation for any information that may indicate a potential contingency
7) examine letters of credit in force as of the balance sheet date and obtain a confirmation of the used and unused balances