TAILIEUCHUNG - Lecture Auditing and assurance services (Second international edition) - Chapter 17: Completing the audit engagement

In this chapter, the learning objectives are: Be able to explain the audit issues related to contingent liabilities, know the audit procedures used to identify contingent liabilities, understand the audit issues related to a legal letter, be able to explain why the auditor must be concerned with client commitments. | Completing the Audit Engagement Chapter Seventeen Contingency A contingency is a liability that is uncertain because the possible outflow of resources from the entity will ultimately be resolved when some future event occurs or fails to occur. Probable: The future event is more likely than not to occur. Neither probable nor remote: The chance of the future event is less likely than not to occur but the chance is more than slight. Remote: The chance of the future event occurring is slight. Examples Pending or threatened litigation Actual or possible claims and assessments Income tax disputes Product warranties or defect; Guarantees of obligations to others Agreements to repurchase receivables that have been sold Audit Procedures for Identifying Contingencies Read minutes of meetings of those charged with governance, . the board of directors. Review contracts, loan agreements, leases and correspondence from government bodies. Confirm or otherwise document guarantees and letters of credit. Inspect other documents for possible guarantees. Review tax returns, tax liability and tax authorities’ reports. Audit Procedures for Identifying Contingencies Inquiry and discussion with management about its policies and procedures for identifying, evaluating and accounting for contingencies. Examine documents in the entity’s records such as correspondence and invoices from lawyers for pending or threatened lawsuits. Obtain a legal letter that describes and evaluates any litigation, claims or assessments. Obtain written representation from management that all litigation, asserted and unasserted claims, and assessments have been disclosed in accordance with the applicable financial reporting framework. Specific Audit Procedures Conducted Near Completion of Audit Legal Letters A letter of audit inquiry (a legal letter) sent to the client’s lawyers is the primary means of obtaining or corroborating information about litigation, claims and assessments. Example of Legal Letter

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• Assurance services
• Financial statement auditing
• Auditing services
• Auditing business processes
• Auditing internal control
• Audit engagement
• Assurance services profession
• Audit process
• Assurance framework
• Accounting information
• Financial statement audit
• Auditing and assurance services
• Auditing environment
• Professional standards
• Auditing standards
• Internal auditing services
• Contemporary auditing environment
• Attestation engagements
• Account balances
• Structure of the profession
• Audit firms
• Corporate governance
• Professional ethics
• Legal liability
• Liability to clients
• Financial repport audit process
• Financial report assertions
• The business
• Strategic business risk
• Inherent risk assessment
• Inherent risk
• Internal control structure
• Assessing control risk
• Tests of controls
• Sales cycle
• Substantive tests
• Substantive tests of transactions
• Audit sampling
• Sampling theory
• Adjusting events
• Financial report
• Auditor’s reporting obligations
• Professional reporting obligations
• Prospective financial information
• Highlight information
• Institute of internal auditors
• Government accounting
• Reporting duties