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Auditing is sometimes considered the capstone course because it requires a comprehensive knowledge of all financial accounting topics. After all, how can you audit financial statements if you do not know the rules and practices of accounting? Chapter 10, part c, covers many questions that require knowledge of financial accounting practices and terms. For your convenience, I have attached a PowerPoint file from Spiceland Intermediate Accounting chapter 13 Contingencies. This is a topic covered in ACCT 3021. Focus on the highlighted slides 41-66. Review multiple choice questions 10c43 attached at the bottom of this document.

1. What is a contingent liability? (preferably in your own words; if you copy and paste, indicate source and page/slide number)

2. Why should the auditor contact the legal counsel (lawyer) about contingent liabilities? (answer in your own words, not the explanation to C below)

Look at the explanation for wrong answer D below.

3. Define the word accrued in the context of a contingent liability.

4. Bonus for max points: What is another term accountants use that has the same meaning as accrued in this context?

5. In the context of contingent liabilities, what does probable mean? Also give an example.

6. In this context, what does reasonably estimated mean? Also give an example.

7. Under what circumstances should a company accrue a contingent liability? Use some of the terms you have described above to answer this question. Also give an example.

8. Under what circumstances should a company disclose, but not accrue, a contingent liability? Use some of the terms you have described below to answer this question. Also give an example.

9. When accountants use the term disclose, what does that mean?

10. If a contingent liability is accrued, then it must also be disclosed, but not necessarily vice versa. True or False? Explain.

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