A disclosure of a contingent liability in the footnotes is made rather than adjusting the financial statement accounts when
A) The outcome of the event is judged to be reasonably possible and the loss can be reasonably estimated.
B) The loss can be reasonably estimated, but the outcome is unknown.
C) The outcome of the event is judged to be reasonably possible but the loss cannot be reasonably estimated.
D) The outcome is unknown and the loss is reasonably estimable but the client does not want to book the loss.

Question

Quizplus · Accepted Answer

A contingent liability is disclosed in the footnotes when the outcome of the event is judged to be reasonably possible, but the loss cannot be reasonably estimated. If the loss can be reasonably estimated, it should be recognized and reflected in the financial statement accounts. If the outcome is unknown, the contingency may be disclosed in the footnotes, but if the loss is reasonably estimable, it should be recognized in the financial statement accounts. If the client does not want to book the loss, the auditor should discuss and provide the appropriate disclosures in the footnotes.

A Disclosure of a Contingent Liability in the Footnotes Is