Question

# 1- Please explain and provide examples

Auditors face several issues when assessing the probability of a contingent loss and a range of possible losses. In your post, address the following:

• Discuss the ways in whichS. GAAP and IFRS estimates of contingent losses can differ.
• How is the terminology different between U.S. GAAP and IFRS?
• Why are the differences in estimating contingent losses important to know?

Answer 1

SAVE Category Tasks Image Drawing Voice Solution The ways in which U.S Gaap and IfRs estimates of contingencies can be differ are as follows: Scope- As per U.s gaap accounting requirement of contingencies in ASC 450 aplly to impairment of assets For e.g-risk of loss or collectibility of receivables. As per Ifrs accounting requirement of contingencies IAS 37 do not apply to impairment or adjusting amount to recognised asset. For e.g - IAS 36 Impairment of asset is applicable to recognize contingencies. RECOGNITION OF CONTINGENT LOSSES : As per U.S GAAP one codition must met before an entity can accrue estimated loss is that it is probable that an asset had been impaired or a liability had been incurred at the date of financial statements. i.e must be probable that one or more future event will occur confirming the loss. As per IFRS condition for recognizing a provision as a liability is that, it is probable an outflow of resources will be required to settle the obligation.

SAVE Category Tasks Image Drawing Voice Enter title MEASUREMENT OF CONTINGENT LOSSES/ PROVISIONS: As per US GAAP discounting of contingencies is not appropriate unless both the timings and the amount of future cash flow are fixed or reliably determinable. As per IFRS the amount of provision should be the present value of future expenditure expected to settles the obligation. RECOVERIES OF CONTINGENT LOSSES : As per US GAAP gain contingencies related to the recovery of contingent losses are recognized when realization of the claim for recovery of loss recognized in the financial statement is probable. As per IFRS expected reimbursement of expenditures required to settle a provision are recognized only when it is virtually certain that it will be received.

SAVE Category Tasks Image Drawing Voice Enter title TERMINOLOGY DIFFERENCES Both US GAAP and IFRS uses different terminology to describe contingencies. As per US GAAP this terminology is related to financial statement's element of performance Two key terms are : 1) contingent losses 2) contingent gains. As per IFRS the terminology used is related to financial statement's element of financial position. Three key terms are : 1) coningent assets 2) contingent liabilities 3) provisions The differnce s in estimating contingent losses are important to know because : Contingent liability or losses are very important audit items because they represent risk that easily mis-understood or dimissed. Because of the risk they impose and the freuncy with which they occur in finance ,it should be carefully considered by every auditors, because creditors and investors rely on the audit reports to expose hidden risks.