Question

Match the following terms to the appropriate definition (or partial definition). Each definition is used once.

Term
a. Commitment
b. Contingent liability
c. General risk contingency
d. Iron curtain approach
e. Known misstatements
f. Likely misstatements
g. Loss contingency
h. Rollover approach

Definition (or Partial Definition)
1. A contractual obligation to carry out a transaction at specified terms in the future. Material commitments should be disclosed in the financial statements.
2. A possible liability, stemming from past events, that will be resolved as to existence and amount by some future event.
3. A possible loss, stemming from past events, that will be resolved as to existence and amount by some future event.
4. An approach to making materiality judgments that quantifies the total likely misstatement as of the current year-end based on the effects of reflecting all misstatements (including projecting misstatements where appropriate) existing in the balance sheet at the end of the current year, irrespective of whether the misstatements occurred in the current year or previous years.
5. An approach to making materiality judgments that quantifies the total likely misstatement as of the current year-end based on the effects of reflecting misstatements (including projecting misstatements where appropriate) only during the current year.
6. An element of the business environment that involves some risk of a future loss. Examples include the risk of accident, strike, price fluctuations, or natural catastrophe. General risk contingencies should not be disclosed in financial statements.
7. Misstatements identified by the auditors during the course of the audit that are due to either extrapolation from audit evidence or differences in accounting estimates.
8. Specific misstatements identified by the auditors during the course of the audit.



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  • CreatedOctober 27, 2014
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