Litigation – NBC Institute

AAA – Nov 2013 – L3 – A – Q15 – Audit Reporting

This question assesses the primary purpose of sending a letter of enquiry to a legal firm regarding client litigation.

Question

The main reasons why auditors send a letter of enquiry to the legal firm handling litigation or claims on behalf of their client is to provide:
A. Auditors with weak position in client litigation and claims
B. Auditors with written submission and statement of claims to the court
C. Information concerning the progress of outstanding cases to date
D. Auditors with corroborative audit evidence
E. Auditors with impact of legal opinion on financial statements

Answer

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Tags: Audit evidence, Legal claims, Letter of Enquiry, Litigation
Level: Level 3

Topic: Audit Reporting
Series: NOV 2012

CR – Nov 2021 – L3 – Q4 – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Guidance on presenting litigation, lease contract, and brand valuation in Fidipote PLC’s financial statements.

Question

You are the Financial Controller of Fidipote PLC, a bottling company with diverse products. The accountant responsible for preparing the 2020 annual financial statements is considering the accounting treatment of the following and has approached you for guidance:

a. On December 31, 2020, Fidipote PLC has a litigation proceeding involving a customer claiming damages in the sum of ₦50 million because she had allegedly been injured when drinking one of the company’s products. She had claimed that the company bottled a sharp object inside the content of the product which she swallowed and had to be operated upon in order to remove the object. Fidipote PLC is disputing the claim, maintaining that any injury was due solely to negligence on the part of the customer. As at December 31, 2020, the case was yet to be decided.
(8 Marks)

b. Fidipote PLC signed a ten-year lease agreement on a property requiring an annual payment of ₦5 million in advance on January 1, 2016. The property was used over the years as a Cinema Hall. As a result of the COVID-19 pandemic and the lockdown during 2020, the consequent long closure of the hall made patronage of cinema shows financially unsustainable. Fidipote PLC discovered that it has no further use of the building. It is not possible to sub-lease the building to another tenant, and remodeling cannot be done due to certain provisions of the lease agreement. As at December 31, 2020, the present value cost of outstanding lease installments amounted to ₦22.5 million.
(6 Marks)

c. The Managing Director made a proposal that the Fidipote brand name is unique and of significant market persuasion and should, therefore, be included as an asset in the financial statements. Due diligence, including market research by a certified consultant, has been done on this proposal. A valuation of ₦250 million was determined to be included in the financial statements as at December 31, 2020.
(6 Marks)

Required:
Explain how the above information, a to c, should be presented in the financial statements of Fidipote PLC for the year ended December 31, 2020.

Answer

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Tags: Brand Valuation, Contingent Liabilities, Intangible Assets, Lease Obligations, Litigation, Onerous Contracts
Level: Level 3

Topic: Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

AAA – Nov 2020 – L3 – Q2 – Audit Completion and Final Review

Requirements of ISA 450 for uncorrected misstatements, including discussions on litigation, restructuring, and depreciation adjustments.

Question

You are the engagement partner on the audit of Uchenna & Associates. The audit senior sent you the schedule of uncorrected misstatements, shown below, including notes to explain each matter in the schedule. Profit or loss Statement of financial position is as follows:

The audited financial statements recognized revenue of N250 million and total assets of N1.24 billion. The materiality threshold was determined as N12.5 million.

You are holding a meeting with management tomorrow, at which the uncorrected misstatements will be discussed.

Notes:

Litigation Provision: Uchenna & Associates was involved in a dispute over goods quality, resulting in a court judgment against them for N20 million. Uchenna & Associates has appealed the judgment, and its solicitors are confident of a favorable outcome. Management has not recognized the provision, believing they are likely to win. The audit conclusion is that a provision should be included in the financial statements.
Restructuring Provision: Management recognized a provision for closing one of its factories. Although the board approved the closure in April 2019, no employee announcements were made. The audit conclusion is that the provision should not be recognized.
Depreciation Correction: The audit team’s recomputation identified an understatement of N5,000,000 in depreciation expense.

Required:
a. Explain the requirements of ISA 450: Evaluation of Misstatements Identified during the Audit, with regard to uncorrected audit misstatements. (15 Marks)
b. Discuss the matters to be addressed with management for each uncorrected misstatement. (5 Marks)

Answer

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Tags: Audit adjustments, Depreciation Correction, ISA 450, Litigation, Materiality Threshold, Misstatements Evaluation, Restructuring
Level: Level 3

Topic: Audit Completion and Final Review

AAA – Nov 2017 – L3 – Q5 – Audit Evidence

Evaluate XYZ Bank’s provision for litigation, discuss audit procedures per ISA 501, and prepare litigation disclosure for financial statements.

Question

You are the audit manager for XYZ Bank Limited for the year ended December 31, 2016. The Bank’s Board noted a litigation issue involving a lawsuit from BBB Limited, where the Bank was found liable for a cheque conversion worth ₦2.1 billion. The high court imposed a penalty on the Bank for this amount, which BBB Limited is now claiming.

The Bank has objected to the judgment, appealing to the Court of Appeal, with legal counsel advising that a favorable outcome is expected. The Bank’s litigation-related financial information is as follows:

Provision for litigation (recognized in financial statements): ₦96 million
Litigation cases as defendant: 50
Litigation cases as plaintiff: 10
Claims in favor of the Bank: ₦2.7 billion
Claims against the Bank (including the ₦2.1 billion case): ₦3.2 billion

Requirements:
a. Discuss FOUR specific considerations under ISA 501 for obtaining audit evidence on litigation provisions.

(5 Marks)
b. Evaluate the adequacy of the litigation provision recognized in the financial statements as at December 31, 2016.

(5 Marks)
c. Prepare a summary disclosure of the litigation status for inclusion in the financial statement notes as at December 31, 2016.

(5 Marks)

Answer

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Tags: Audit evidence, Financial Disclosure, IAS 37, Litigation, Provisions
Level: Level 3

Topic: Audit evidence
Series: NOV 2017

CSEG – May 2017 – L2 – Q3b – Business ethics

Explain four safeguards to address actual and threatened litigation in the accounting profession.

Question

Professional accountants face many threats in the performance of their duties that may negatively affect accountants’ objectivity and independence. One of such threats is intimidation threat which may arise from close business relationships, family and personal relationships, and assurance staff members moving to employment with clients as well as actual and threatened litigation.

Required:

Explain FOUR safeguards you will consider to deal with actual and threatened litigation as a professional accountant. (6 marks)

Answer

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Tags: Accountants' Independence, Litigation, Professional Ethics, Safeguards
Level: Level 2

Series: MAY 2017

AAA – Nov 2013 – L3 – A – Q15 – Audit Reporting

This question assesses the primary purpose of sending a letter of enquiry to a legal firm regarding client litigation.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit evidence, Legal claims, Letter of Enquiry, Litigation
Level: Level 3

Topic: Audit Reporting
Series: NOV 2012

CR – Nov 2021 – L3 – Q4 – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Guidance on presenting litigation, lease contract, and brand valuation in Fidipote PLC’s financial statements.

Question

Required:
Explain how the above information, a to c, should be presented in the financial statements of Fidipote PLC for the year ended December 31, 2020.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Brand Valuation, Contingent Liabilities, Intangible Assets, Lease Obligations, Litigation, Onerous Contracts
Level: Level 3

Topic: Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

AAA – Nov 2020 – L3 – Q2 – Audit Completion and Final Review

Requirements of ISA 450 for uncorrected misstatements, including discussions on litigation, restructuring, and depreciation adjustments.

Question

The audited financial statements recognized revenue of N250 million and total assets of N1.24 billion. The materiality threshold was determined as N12.5 million.

You are holding a meeting with management tomorrow, at which the uncorrected misstatements will be discussed.

Notes:

Litigation Provision: Uchenna & Associates was involved in a dispute over goods quality, resulting in a court judgment against them for N20 million. Uchenna & Associates has appealed the judgment, and its solicitors are confident of a favorable outcome. Management has not recognized the provision, believing they are likely to win. The audit conclusion is that a provision should be included in the financial statements.
Restructuring Provision: Management recognized a provision for closing one of its factories. Although the board approved the closure in April 2019, no employee announcements were made. The audit conclusion is that the provision should not be recognized.
Depreciation Correction: The audit team’s recomputation identified an understatement of N5,000,000 in depreciation expense.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit adjustments, Depreciation Correction, ISA 450, Litigation, Materiality Threshold, Misstatements Evaluation, Restructuring
Level: Level 3

Topic: Audit Completion and Final Review

AAA – Nov 2017 – L3 – Q5 – Audit Evidence

Evaluate XYZ Bank’s provision for litigation, discuss audit procedures per ISA 501, and prepare litigation disclosure for financial statements.

Question

Provision for litigation (recognized in financial statements): ₦96 million
Litigation cases as defendant: 50
Litigation cases as plaintiff: 10
Claims in favor of the Bank: ₦2.7 billion
Claims against the Bank (including the ₦2.1 billion case): ₦3.2 billion

Requirements:
a. Discuss FOUR specific considerations under ISA 501 for obtaining audit evidence on litigation provisions.

(5 Marks)
b. Evaluate the adequacy of the litigation provision recognized in the financial statements as at December 31, 2016.

(5 Marks)
c. Prepare a summary disclosure of the litigation status for inclusion in the financial statement notes as at December 31, 2016.

(5 Marks)

Answer

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Tags: Audit evidence, Financial Disclosure, IAS 37, Litigation, Provisions
Level: Level 3

Topic: Audit evidence
Series: NOV 2017

CSEG – May 2017 – L2 – Q3b – Business ethics

Explain four safeguards to address actual and threatened litigation in the accounting profession.

Question

Required:

Explain FOUR safeguards you will consider to deal with actual and threatened litigation as a professional accountant. (6 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Accountants' Independence, Litigation, Professional Ethics, Safeguards
Level: Level 2

Series: MAY 2017

Question Tag: Litigation

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AAA – Nov 2013 – L3 – A – Q15 – Audit Reporting

This question assesses the primary purpose of sending a letter of enquiry to a legal firm regarding client litigation.

CR – Nov 2021 – L3 – Q4 – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Guidance on presenting litigation, lease contract, and brand valuation in Fidipote PLC’s financial statements.

AAA – Nov 2020 – L3 – Q2 – Audit Completion and Final Review

Requirements of ISA 450 for uncorrected misstatements, including discussions on litigation, restructuring, and depreciation adjustments.

AAA – Nov 2017 – L3 – Q5 – Audit Evidence

Evaluate XYZ Bank’s provision for litigation, discuss audit procedures per ISA 501, and prepare litigation disclosure for financial statements.

CSEG – May 2017 – L2 – Q3b – Business ethics

Explain four safeguards to address actual and threatened litigation in the accounting profession.

AAA – Nov 2013 – L3 – A – Q15 – Audit Reporting

This question assesses the primary purpose of sending a letter of enquiry to a legal firm regarding client litigation.

CR – Nov 2021 – L3 – Q4 – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Guidance on presenting litigation, lease contract, and brand valuation in Fidipote PLC’s financial statements.

AAA – Nov 2020 – L3 – Q2 – Audit Completion and Final Review

Requirements of ISA 450 for uncorrected misstatements, including discussions on litigation, restructuring, and depreciation adjustments.

AAA – Nov 2017 – L3 – Q5 – Audit Evidence

Evaluate XYZ Bank’s provision for litigation, discuss audit procedures per ISA 501, and prepare litigation disclosure for financial statements.

CSEG – May 2017 – L2 – Q3b – Business ethics

Explain four safeguards to address actual and threatened litigation in the accounting profession.

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AAA – Nov 2013 – L3 – A – Q15 – Audit Reporting

This question assesses the primary purpose of sending a letter of enquiry to a legal firm regarding client litigation.

You're reporting an error for "AAA – Nov 2013 – L3 – A – Q15 – Audit Reporting"

CR – Nov 2021 – L3 – Q4 – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Guidance on presenting litigation, lease contract, and brand valuation in Fidipote PLC’s financial statements.

You're reporting an error for "CR – Nov 2021 – L3 – Q4 – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)"

AAA – Nov 2020 – L3 – Q2 – Audit Completion and Final Review

Requirements of ISA 450 for uncorrected misstatements, including discussions on litigation, restructuring, and depreciation adjustments.

You're reporting an error for "AAA – Nov 2020 – L3 – Q2 – Audit Completion and Final Review"

AAA – Nov 2017 – L3 – Q5 – Audit Evidence

Evaluate XYZ Bank’s provision for litigation, discuss audit procedures per ISA 501, and prepare litigation disclosure for financial statements.

You're reporting an error for "AAA – Nov 2017 – L3 – Q5 – Audit Evidence"

CSEG – May 2017 – L2 – Q3b – Business ethics

Explain four safeguards to address actual and threatened litigation in the accounting profession.

You're reporting an error for "CSEG – May 2017 – L2 – Q3b – Business ethics"

AAA – Nov 2013 – L3 – A – Q15 – Audit Reporting

This question assesses the primary purpose of sending a letter of enquiry to a legal firm regarding client litigation.

You're reporting an error for "AAA – Nov 2013 – L3 – A – Q15 – Audit Reporting"

CR – Nov 2021 – L3 – Q4 – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Guidance on presenting litigation, lease contract, and brand valuation in Fidipote PLC’s financial statements.

You're reporting an error for "CR – Nov 2021 – L3 – Q4 – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)"

AAA – Nov 2020 – L3 – Q2 – Audit Completion and Final Review

Requirements of ISA 450 for uncorrected misstatements, including discussions on litigation, restructuring, and depreciation adjustments.

You're reporting an error for "AAA – Nov 2020 – L3 – Q2 – Audit Completion and Final Review"

AAA – Nov 2017 – L3 – Q5 – Audit Evidence

Evaluate XYZ Bank’s provision for litigation, discuss audit procedures per ISA 501, and prepare litigation disclosure for financial statements.

You're reporting an error for "AAA – Nov 2017 – L3 – Q5 – Audit Evidence"

CSEG – May 2017 – L2 – Q3b – Business ethics

Explain four safeguards to address actual and threatened litigation in the accounting profession.

You're reporting an error for "CSEG – May 2017 – L2 – Q3b – Business ethics"

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