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Kathy Choi, a public accountant, has completed the audit of notes payable and other liabilities for Valley River Electrical Services Lid. and now plans to audit contingent liabilities and commitments. Required a. Distinguish between contingent liabilities and commitments and explain why both are important in an audit. b. Describe how Kathy's testing of the audit of notes payable earlier in the audit process might help her obtain evidence about the presentation and disclosure audit objectives. c. Identify three useful audit procedures for uncovering contingent liabilities that Kathy would likely perform in the normal conduct of the audit, even if she had no responsibility for uncovering contingencies. d. Identify three other procedures Kathy would likely perform specifically for the purpose of identifying undisclosed contingencies. Requirement a. Distinguish between contingent liabilities and commitments and explain why both are important in an audit. Begin by defining contingent liabilities. O A. A contingent liability is a company's legal debts or obligations that arise during the course of business operations. O B. A contingent liability is an agreement to commit the entity to a set of fixed conditions in the future, regardless of what happens to profits or the economy as a whole. O C. A contingent liability is a definite future obligation to an outside party for a known amount arising from activities that have already taken place. O D. A contingent liability is a potential future obligation to an outside party for an unknown amount arising from activities that have already taken place. Next, define commitment. O A. A commitment is a potential legal claim against a client where the condition for a claim exists but no claim has been filed. O B. A commitment is an agreement to commit the entity to a set of fixed conditions in the future, regardless of what happens to profits or the economy as a whole. O C. A commitment is a company's legal debts or obligations that arise during the course of business operations. O D. A commitment is a potential future obligation to an outside party for an unknown amount arising from activities that have already taken place.Now, explain why contingent liabilities and commitments are important in an audit. O A. Knowledge of both contingencies and commitments is extremely important to users of financial statements because they represent true liabilities to the company. O B. Knowledge of both contingencies and commitments is extremely important to users of financial statements because they represent true benefits to the company and thus affect the future cash flows available to creditors and investors. O C. Knowledge of both contingencies and commitments is extremely important to users of financial statements because they represent the encumbrance of potentially material amounts of resources during future periods and thus affect the future cash flows available to creditors and investors. O D. Knowledge of both contingencies and commitments is extremely important to users of financial statements because they represent the cash needs of the company today and thus affect the current cash flows available to creditors and investors. Requirement b. Describe how Kathy's testing of the audit of notes payable earlier in the audit process might help her obtain evidence about the presentation and disclosure audit objectives. Kathy's and related to payments of notes payable and related interest expense would provide information about scheduled debt payments and related interest rate terms, which are footnote disclosure related items. Similarly, would reveal additions and retirements of notes payable, which notes payable disclosures. such as notes payable confirmations, provide sufficient appropriate evidence about the existence of ending balances and related notes payable terms, such as interest rates and required collateral.Requirement c. Identify three useful audit procedures for uncovering contingent liabilities that Kathy would likely perform in the normal conduct of the audit, even if she had no responsibility for uncovering contingencies. (Select the 3 that apply.) [A. Compare classification with chart of accounts by referring to vendors' invoices and acquisition journal. B. Review internal revenue agent reports of income tax settlements. C. Review minutes of meetings of board of directors and shareholders. OD. Confirm used and unused balances of lines of credit. E. Examine invoices for proper authorization. Requirement d. Identify three other procedures Kathy would likely to perform specifically for the purpose of identifying undisclosed contingencies. (Select all that apply.) A. Analyse legal expenses for indication of contingent liabilities. B. Confirm accounts receivable balances with customers. C. Make inquiries of management. OD. Confirm details of share transactions with registrar and transfer agent. OE. Request letters from attorneys regarding the existence and status of litigation and other potential contingent liabilities