If the Auditor Concludes That There Are Contingent Liabilities, He

question 69

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) Frequently, the CPA firm obtains a separate evaluation of the potential liability from its own legal counsel rather than relying on management or management's attorneys.
• D) Answers B and C are correct, but answer A is not.

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Definitions:

Deflation

Deflation is a decrease in the general price level of goods and services, often associated with an increase in the purchasing power of money.

Nominal Interest Rate

The proportionate growth in the amount of money that borrowers need to repay to lenders, excluding adjustments for inflation.

Nominal Interest Rates

The interest rate prior to inflation adjustment, denoting the nominal value of interest payments.

Real Interest Rates

The interest rates adjusted for inflation, more accurately reflecting the true cost of borrowing.