Identifying Loss contingencies Once the audit evidence is gathered and the testi

Question

Identifying Loss contingencies
Once the audit evidence is gathered and the testing is complete, how do you know there are no other items outstanding? To ensure the audit is complete, it is important to examine loss contingencies.

Jason Long, CPA, has completed his examination of accounts payable and other liabilities of the Jackson Company. He has now shifted his attention to search for any loss contingencies by looking for litigation, claims, and other types of assessments.

How should Jason Long plan to search for these loss contingencies?
What are some sources he can use to identify if loss contingencies exist?
What should be considered when reporting loss contingencies?

Explanation / Answer

Loss contingency is incurred by the entity based on the outcome of a future event, such as litigation. It can be due to conservative accounting principles, loss contingencies are reported on the balance sheet and footnotes on the financial statements.

As per ASC 450,”Contingencies is outlined as the accounting and disclosure requirement for loss and gain contingencies”.

Sources of contingencies are as follows:

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