Determining the likelihood of a loss contingency occurring and trying to estimate a reasonable amount for a future loss _______.
A)should be determined by the client's legal counsel
B)should be determined solely by the external auditor
C)should be determined solely by the internal auditor
D)involves significant judgment by management

Question

Quizplus · Accepted Answer

Determining the likelihood of a loss contingency occurring and estimating a reasonable amount for a future loss involves significant judgment by management. This is because management is responsible for assessing and managing the risks faced by the organization, and they have access to information about the circumstances surrounding the contingency that the auditor may not have. While legal counsel may provide guidance on the interpretation of laws and regulations related to the contingency, it is ultimately management's responsibility to assess the likelihood of the contingency occurring and estimate the potential financial impact. The external auditor may provide support in assessing and evaluating management's estimates and disclosures related to the contingency, but they are not responsible for making these determinations. The internal auditor may provide assurance on the adequacy of the organization's processes for identifying and managing loss contingencies, but they are not responsible for making estimates or determining the likelihood of a contingency occurring.

Determining the Likelihood of a Loss Contingency Occurring and Trying