Write a short note on Vouching of Contingent Liability.

Vouching of Contingent Liability:

According to Prof. Walter B. Meigs, Contingent Liabilities may be defined as potential obligation which may in the future develop into actual liabilities or may dissolve without necessitating any outlay. For example, pending suit for damages, amount uncalled on partly paid up shares etc. The difference between absolute liability and contingent liability is that an absolute liability is sure to arise, but a contingent liability may or may not arise.

The auditor should vouch the contingent liability with the help of Board’s minutes, correspondence, bill discounted with the bank, legal advice in respect of legal suits by or against the client. He should also seek necessary confirmation and explanation from the responsible authority.

He should see that all the contingent liabilities have been taken into account. He should consult the solicitor of his client to know the value and genuineness of such liabilities. The auditor should see that the requirements of the Companies Act regarding Contingent Liability have been duly complied with.