CA Inter P5 · Chapter 5 · Question 12 of 12
Which procedure is most effective in identifying unrecorded contingent liabilities of Arjun Logistics Ltd.?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Reviewing minutes of board meetings, correspondence with lawyers and legal expense ledgers, and sending letters of inquiry to the company's external legal counsel
Explanation
Contingent liabilities, by their nature, are often not recorded, so the auditor must look for evidence of them in sources such as minutes, legal correspondence, legal fees and letters to external counsel (SA 501). Vouching or recomputing recorded provisions tests existence or accuracy of recorded items, not completeness of unrecorded ones.
More Audit of Items of Financial Statements MCQs
- Q2The auditor of Bhoomi Engineering Ltd. selects assets physically present on the factory floor and traces them to the fixed asset register…
- Q3Title deeds of a factory building owned by Yatin Polymers Ltd. are lodged with a bank as security for a term loan. To verify title, the…
- Q4Ekam Packaging Ltd. bought a machine on 1 October for Rs. 48 lakh. Its estimated residual value is Rs. 3 lakh and useful life 9 years. The…
- Q5The auditor of Garima Distributors Ltd. examines cash received from customers in the six weeks after the year-end and matches it to…
- Q6Ritam Chemicals Ltd. holds 1,000 units of a product at a cost of Rs. 600 per unit. The expected selling price is Rs. 650 per unit and…