[Anonymous]

NINJA Question –

Basically, if the following is too long to read, one of the questions says obtaining a letter of audit inquiry from the lawyer is the right answer and one of them says another answer is the right answer.

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Question: Which of the following is an audit procedure that an auditor most likely would perform concerning litigation, claims, and assessments?

A. Request that the client’s lawyer evaluate whether the client’s pending litigation, claims, and assessments indicate a going concern problem

B. Examine the legal documents in the client’s lawyer’s possession concerning litigation, claims, and assessments to which the lawyer has devoted substantive attention

C. Discuss with management its policies and procedures adopted for evaluating and accounting for litigation, claims, and assessments

D. Confirm directly with the client’s lawyer that all litigation, claims, and assessments have been recorded or disclosed in the financial statements

“Management is responsible for adopting policies and procedures to identify, evaluate, and account for litigation, claims, and assessments as a basis for the preparation of financial statements, in accordance with the requirements of the applicable financial reporting framework” (AU-C 501.A41). Therefore, the audit procedure that an auditor most likely would perform concerning litigation, claims, and assessments would be to discuss with management its policies and procedures adopted for evaluating and accounting for litigation, claims, and assessments. Although a letter of inquiry to the client’s lawyer is a primary means of obtaining corroborating evidence of litigation, claims, and assessments, the letter only asks the lawyer to evaluate the outcome and estimated range of potential loss of the asserted and unasserted claims as listed by management and to state whether there are any others management should list. The attorney is not asked if these claims represent a going concern problem, if they are recorded or disclosed in the financial statements, or if the auditor may examine the documents in the lawyer’s possession.

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Second question (don’t have the answer explanation but I have the original question and correct answer)

To account in evaluation of loss contingencies, an auditor most likely would…

A. obtain a letter of audit inquiry from the client’s lawyer.

[Anonymous]

Found the other question! As you can see, the correct answer to this question is obtaining a letter of audit inquiry, whereas for the above question that is the incorrect answer.

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Which of the following procedures would an auditor most likely perform to assist in the evaluation of loss contingencies?

A. Checking arithmetic accuracy of the accounting records

B. Performing appropriate analytical procedures

C. Obtaining a letter of audit inquiry from the client's lawyer

D. Reading the financial statements, including footnotes

An event or condition that might result in a loss in the future may need to be recorded in the financial statements and/or disclosed in the notes to the financial statements, depending upon the likelihood of its occurrence and whether or not the loss can be estimated. Management is the primary source for information on loss contingencies; however, the auditor must corroborate the information that comes from management.

In a letter of audit inquiry, the client's lawyer reads management's description and evaluation of pending litigation, claims, and assessments (contingencies). For each matter, the auditor requests that the lawyer furnish information such as progress to date, actions to be taken, an evaluation of the likelihood of an unfavorable outcome, an estimate (if possible) of the amount or range of potential loss, and any items on which he and management disagree. The lawyer's response will assist the auditor with evaluating the loss contingencies and determining whether or not they are properly reflected in the financial statements.

[Anonymous]

Found the other question! As you can see, the correct answer to this question is obtaining a letter of audit inquiry, whereas for the above question that is the incorrect answer.

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Which of the following procedures would an auditor most likely perform to assist in the evaluation of loss contingencies?

A. Checking arithmetic accuracy of the accounting records

B. Performing appropriate analytical procedures

C. Obtaining a letter of audit inquiry from the client's lawyer

D. Reading the financial statements, including footnotes

An event or condition that might result in a loss in the future may need to be recorded in the financial statements and/or disclosed in the notes to the financial statements, depending upon the likelihood of its occurrence and whether or not the loss can be estimated. Management is the primary source for information on loss contingencies; however, the auditor must corroborate the information that comes from management.

In a letter of audit inquiry, the client's lawyer reads management's description and evaluation of pending litigation, claims, and assessments (contingencies). For each matter, the auditor requests that the lawyer furnish information such as progress to date, actions to be taken, an evaluation of the likelihood of an unfavorable outcome, an estimate (if possible) of the amount or range of potential loss, and any items on which he and management disagree. The lawyer's response will assist the auditor with evaluating the loss contingencies and determining whether or not they are properly reflected in the financial statements.

[mtwst113]

What is the answer they have listed for the first question (a,b,c, or d)?

BEC | √
AUD| √
FAR| Spring 2015

[mtwst113]

What is the answer they have listed for the first question (a,b,c, or d)?

BEC | √
AUD| √
FAR| Spring 2015

[Anonymous]

According to Wiley, the answer to the first question is C, discuss with management.

[Anonymous]

According to Wiley, the answer to the first question is C, discuss with management.

[mtwst113]

Questions 1 and 2 are asking different things.

Question 1 – Which of the following is an audit procedure that an auditor most likely would perform concerning litigation, claims, and assessments?

Answer: Discuss with management its policies and procedures adopted for evaluating and accounting for litigation, claims, and assessments

Question 2 – Which of the following procedures would an auditor most likely perform to assist in the evaluation of loss contingencies?

Answer: Obtaining a letter of audit inquiry from the client's lawyer

The answer for question 1 is correct..let's compare the next best option, Letter D which says “Confirm directly with the client's lawyer that all litigation, claims, and assessments have been recorded or disclosed in the financial statements”. Letter D isn't the best choice because even though the clients lawyer is aware of all litigation, claims, etc….confirming that those things exist doesn't give the auditor comfort that any of those things are actually disclosed in the financial statements. That's why C is better, because it gives the auditor a better idea of how management responds (in terms of accounting methods) to a lawsuit for instance.

Question 2 is asking what the auditor is most likely to do when evaluating a loss contingency. This is a separate issue. The auditor has to reach out to the lawyer in order to make sure that management is providing the auditor with accurate information. Notice there is no answer choice in question 2 that involves management.

Hope this helps.

BEC | √
AUD| √
FAR| Spring 2015

[mtwst113]

Questions 1 and 2 are asking different things.

Question 1 – Which of the following is an audit procedure that an auditor most likely would perform concerning litigation, claims, and assessments?

Answer: Discuss with management its policies and procedures adopted for evaluating and accounting for litigation, claims, and assessments

Question 2 – Which of the following procedures would an auditor most likely perform to assist in the evaluation of loss contingencies?

Answer: Obtaining a letter of audit inquiry from the client's lawyer

The answer for question 1 is correct..let's compare the next best option, Letter D which says “Confirm directly with the client's lawyer that all litigation, claims, and assessments have been recorded or disclosed in the financial statements”. Letter D isn't the best choice because even though the clients lawyer is aware of all litigation, claims, etc….confirming that those things exist doesn't give the auditor comfort that any of those things are actually disclosed in the financial statements. That's why C is better, because it gives the auditor a better idea of how management responds (in terms of accounting methods) to a lawsuit for instance.

Question 2 is asking what the auditor is most likely to do when evaluating a loss contingency. This is a separate issue. The auditor has to reach out to the lawyer in order to make sure that management is providing the auditor with accurate information. Notice there is no answer choice in question 2 that involves management.

Hope this helps.

BEC | √
AUD| √
FAR| Spring 2015

[Anonymous]

Thanks a bunch man.

[Anonymous]

Thanks a bunch man.

[Author]

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