If the Auditor Concludes That There Are Contingent Liabilities, He

question 8

Multiple Choice

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?

• A) The potential liability is sufficiently well known in some instances to be included in the financial statements as an actual liability.
• B) Disclosure may be unnecessary if the contingency is highly remote or immaterial.
• C) 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.
• D) The client's attorneys must remain independent when evaluating the likelihood of losing the lawsuit.

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Definitions:

Social Overhead Capital

Capital invested in public infrastructure and services such as transportation, utilities, and education systems, essential for economic development.

Power Plants

Facilities that generate electricity by converting various forms of energy into electrical power.

Brain Drain

The emigration of highly trained or qualified individuals from a particular country or region, often due to better opportunities or living conditions elsewhere.

Economic Efficiency

A condition in which a system is capable of producing maximum desired outputs from given inputs without wastage, reflecting optimal allocation of resources.