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If the auditor concludes that there are contingent liabilities, he or she must evaluate the ...

If the auditor concludes that there are contingent liabilities, he or she must evaluate the significance of the potential liability and the nature of the disclosure needed in the financial statements. Which of the following statements is not true?

▸ The potential liability is sufficiently well known in some instances to be included in the financial statements as an actual liability.

▸ Disclosure may be unnecessary if the contingency is highly remote or immaterial.

▸ A CPA firm often obtains a separate evaluation of the potential liability from its own legal counsel rather than relying on management or management's attorneys.

▸ The client's attorneys must remain independent when evaluating the likelihood of losing the lawsuit.

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Auditing and Assurance Services

Edition: 17^th

Authors: Arens, Elder, Beasley, Hogan

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