please answer these two discussions 3

Discussion 1

A number of companies have pending lawsuits or other contingent liabilities reported in their financial statements.

  1. Search the EDGAR database found at (Links to an external site.) to find a company’s 10-K that reports a contingent liability. Write a paragraph summarizing one of the liabilities found in the financial statements. Did the company disclose the liability in the footnotes only, or did it recognize the liability in the financial statements?
  2. What procedures might the auditors use to search for the contingent liabilities?

Points will be deducted for poor grammar and misspelled words.

Discussion 2

The following auditor’s report was drafted by a staff accountant of Paul and Paul, CPAs, at the completion of the audit of the comparative financial statements of ABC Corporation for the years ended December 31, 2018 and 2017. The report was submitted to the engagement partner, who reviewed matters thoroughly and properly concluded that an unmodified opinion should be expressed. The draft of the report prepared by an inexperienced staff auditor is as follows:

Auditor’s Report

We have audited the accompanying financial statements of ABC Corporation, which comprise the statements of assets, liabilities, and capital as of December 31, 2018, and the related statements of revenue and expenses for the year then ended, and the related notes to the financial statements.

We conducted our audit in accordance with standards established by the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.


In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities, and owners’ equity of ABC Corporation as of December 31, 2018, and its revenue and expenses for the year then ended in conformity with generally accepted accounting principles applied on a consistent basis.

Critical Audit Matters

There were no critical audit matters.

Paul and Paul, CPAs

March 31, 2019


Identify the errors and omissions in the auditor’s report as drafted by the staff auditor. Group the errors and omissions by paragraph, where applicable. Do not redraft the report.

Points will be deducted for poor grammar and misspelled words.