During an audit engagement, Harper CPA has satisfactorily completed an examination of accounts payable and other liabilities and now plans to determine whether there are any loss contingencies arising from litigation, claims, or assessments
What audit procedures should Harper follow with respect to the existence of loss contingencies arising from litigation, claims, and assessments: do not discuss reporting requirements.© BrainMass Inc. brainmass.com September 23, 2018, 4:00 pm ad1c9bdddf - https://brainmass.com/business/auditing/loss-contingencies-382666
For this problem, the first thing you need to take note of is what is a contingency or a contingent liability or loss. It is one of the requirements of auditors during an engagement to ascertain whether there are any loss contingencies arising from litigation, claims and assessments. This is important since the auditor needs to see to it that management makes the relevant adjustments to the financial statements or make the relevant disclosures, depending on the level uncertainty that exists with claims. It is also done so as to help them (auditors) in forming an opinion as to the fairness of the financial statements.
According to FASB Statement No.5 Accounting for Contingencies, a contingency is defined as "an existing condition, situation, or set of circumstances involving uncertainty as to possible gain (gain contingency) or loss (loss contingency) to an enterprise that will ...
This solution provides information related to the requisite audit procedures a company should follow with respect to the existence of loss contingencies arising from litigation, claims, and assessments.