1. An audit client is being sued for $500,000 for discriminatory hiring practices.;Required;Indicate the appropriate action the auditor should take for each of the following independent responses to the letter of audit inquiry;a. The lawyer stated that the client had a ?meritorious defense.?;b. The lawyer stated that there is only a remote chance that the client will lose. The client did not accrue any contingent loss or disclose this situation.;c. The lawyer stated the client will probably lose, and the amount of the loss could be anywhere between $250,000 and $500,000, with no amount within that range being more likely than another. The client disclosed this situation but did not accrue a loss.;d. The lawyer stated that there is a reasonable possibility that the client will lose. The client disclosed this situation but did not accrue a loss.;e. The lawyer stated the client will probably lose between $250,000 and $500,000, but most likely will lose $400,000. The client accrued a $250,000 contingent loss and disclosed the situation.;2. An alfalfa co-op has an agreement with its farmers to purchase alfalfa at a price that is currently above the existing market price. In addition, the co-op has agreed to pay the farmers interest at 2% for each moth delivery is delayed beyond December 31, 2006. Management expects that at least 14,500 tons will be delivered sometime after the balance sheet date.;a. What factors should be considered in making an estimate of the loss accrual?;b. What information should management disclose in the footnotes to the financial statements concerning this purchase commitment?;Attachment Preview;16-32 & 16-37.doc Download Attachment;1. An audit client is being sued for $500,000 for discriminatory hiring practices.
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