Contingencies and Subsequent Events
Response to the following problem:
The bookkeeper of a company you are auditing states, "Our balance sheet is dated December 31, the end of our accounting period. I don't understand loss contingencies and subsequent events. Also, I see no reason for disclosing these items on the company's balance sheet because they deal with events that might occur or have occurred after the balance sheet date."
Required:
Write a short report to the bookkeeper that explains loss contingencies and subsequent events, as well as the importance of their disclosure on the company's balance sheet.