Chapter 17

Every contingent liability must be recorded.

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An example of a contingent liability is an income tax dispute.

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Reading contracts and loan agreements is one way to identify unrecorded contingent liabilities.

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A legal letter will include and evaluate all contingent liabilities of the company.

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Type II subsequent events are conditions that require an adjustment to the account balance shown on the financial statements.

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An example of a Type I event or condition is the settlement of a lawsuit after the balance sheet date for an amount different from the amount recorded in the year-end financial statements.

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An example of a Type II event or condition is an uncollectible account receivable resulting from deterioration in a customer's financial condition prior to year end, about which the entity is unaware. The customer declares bankruptcy after the balance sheet date but prior to the issuance of the financial statements.

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Dual dating is used to identify unrecorded contingent liabilities.

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The auditor must perform final analytical procedures before deciding on the appropriate audit report to issue for the entity.

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If there is substantial doubt about the entity's ability to continue as a going concern, the auditor should obtain information about the management's plans to mitigate the problem and assess the likelihood that such plans can be implemented.

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