Accrued Liabilities

Audit Work Program

Project Team (List Members):

Project Timing Date Comments

Planning

Fieldwork

Report Issuance (Local)

Report Issuance (Worldwide)

Objectives:

A. Inquire if any contingencies exist. Identify:

The existence of any contingencies arising from litigation, claims and assessments
When the underlying cause occurred
The likelihood of an unfavorable outcome and the amount or range of possible loss
B. Ensure that there is a process in place to disclose contingencies as appropriate.
C. Verify accuracy of expense accounts. Determine that expense accounts include costs and expenses
applicable to the period under review.
D. Verify if accruals have been made. Determine that all contingencies and estimated future expenses
that should be accrued in the period have been accrued, classified and described in accordance with
generally accepted accounting principles consistently applied.

Time Project Work Step Initial Index

A. Verify if contingencies exist

Review and prepare schedule of legal fees charged during the period
under review as indication of possible contingent liabilities.

Examine documents in the business unit's possession concerning

litigation, claims and assessments, including correspondence and
invoices from lawyers. Make inquiries of controllers, accounting
managers and legal counsel.

Source: www.knowledgeleader.com
1
Time Project Work Step Initial Index

B. Verify contingencies are disclosed

Inquire of and discuss with management the policies and procedures

adopted for identifying, evaluating and accounting for litigation, claims
and assessments.

Obtain from management a description and evaluation of litigation,

claims and assessments for the period under review.

Obtain assurance from management that they have disclosed all un-
asserted claims that the lawyer has advised them are probable of
assertion and must be disclosed.

C. Verify accuracy of expense accounts

Inquire of management whether any unusual adjustments were made

during the period under review.

D. Verify appropriateness of accruals

Obtain analysis of accrued liability accounts.

Examine documents or working papers supporting amounts accrued

and:

Determine the basis and method of accrual.

Determine that recomputed amounts were provided.

Review accrual for reasonableness.

Look for any potential P&L management.

Trace amounts accrued during the period to related expense accounts.

Compare accrual to subsequent payments where possible in order to

determine reasonableness.

Test the business unit's computation of accrued vacation pay.

Review any other significant accruals as necessary and any special

reserves (e.g., environmental issues). Reserves should all be reviewed
for basis of liability, reliability of cost estimate, proper application and
approvals for reduction of reserves, if required.

Source: www.knowledgeleader.com
2