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.

Question

Quizplus · Accepted Answer

The statement that the client's attorneys must remain independent when evaluating the likelihood of losing the lawsuit is not true. The client's attorneys may have a conflict of interest and may not be able to provide an impartial evaluation. The auditor should obtain a separate evaluation from legal counsel who is independent of the client.

If the Auditor Concludes That There Are Contingent Liabilities, He