Which one of the following items would NOT be of concern to the auditor as a potential contingent liability, assuming each event could generate a loss of $20 000?
A) loans receivable discounted
B) obsolete inventory
C) unused balances of outstanding letters of credit
D) income tax disputes

Question

Quizplus · Accepted Answer

Contingent liabilities are potential obligations that arise from past events, and their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not entirely within the control of the entity. The auditor would be concerned about loans receivable discounted, unused balances of outstanding letters of credit, and income tax disputes as potential contingent liabilities because they could result in future losses. However, obsolete inventory is not a potential contingent liability, as it is an inventory item that would no longer be sold or used and does not have any future loss potential.

Which One of the Following Items Would NOT Be of Concern