Q3: Why do you think a client’s lawyer would be hesitant to disclose information to you (the auditor)?
Solution
The client lawyers or attorneys often are hesitant to disclose information to the auditor. The client lawyers or the attorneys know well that documentation of the disclosed information (audit documentation) will be done by the auditors themselves. The audit documentation is not protected in most states by the use of privileged communication. Any information that is regarded not concession can be subjected to subpoena through the law courts similarly serving as evidence next to the client. The attorneys or client lawyers often have concessional communication through their clients.
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Q4: What is the difference between a contingent liability and an actual liability? Provide examples.
Solution
A contingent liability is defined as the potential obligation forecasts to an outside party for an amount not known that result from the activities that have occurred (Cebotari, 2008). For example, a warranty that is often provided for new cars in the automobile industry. Since it is likely that some vehicles/cars will need work during the provided period of warranty, the automakers estimate the amount, the warranty cost pegged on the estimated amount would be reported in the automakers’ balance sheets as a liability when sales are made for the vehicles/cars. Another contingent liability example is a lawsuit that has not been resolved yet filed.
On the other hand, the actual liability is the amount of service that requires to be rendered. An actual liability has some stated amount and actually exists. For example, bonds payable, wages payable, salaries payable and interests payable.
References
Cebotari, A. (2008). Contingent liabilities: issues and practice (No. 2008-2245). International Monetary Fund.
