1. Contract Law for Professional Accountants

 First thing before turning pages of contract law, accountants should keep in mind that they are neither going to be lawyer (some may but by earning law degree) nor they are judges to provide justice.

I too did learn some chapters of contract law during my CAP I phase and it was amazing how my teacher taught. But later with some experience of auditing and course in Law too, I came to realize what we have learnt is in light of lawyering and not in light of accounting. 

Then let us try to synchronize contract law with Financial Reporting & Financial Auditing with presumption that the readers know basic features of Contract Law.

1. Contract Law facilitate the commercial transaction without need of Government interference in private affairs of parties.  

2. Financial Reporting facilitates decision making during the course of commercial transactions by providing numbers to the Capital Accumulation and any effect on such process of accumulating capital.

3. Financial Reporting too is made by the state, private affairs except for entities requiring public disclosure of their Financial Statement. Here too, State allows private party to check those numbers and only previously agreed numbers under Financial Reporting Standards are required to be disclosed. 

4. By (1) & (2), we see that Financial Reporting records the numbers generated from transactions facilitated or made on the basis of Contract between parties. Each of contracting parties account their portion of unfolding events in the future in their respective books. 

5. By (4) we saw that the source of accounting is Contracts, which in the course of dispute will be used by Courts too, is the guide of Sufficient and Appropriate Audit Evidence in the course of Financial Auditing.

6. Financial Reporting Standards such as for Financial Instruments, Revenue from Contract with Customers, Leases, Insurance Contracts, Employee Benefit, Share Based Payment, etc. directly requires accountant to use only respective contract to accounting and hence it is the direct source of Audit Evidence for Auditors. 

7. Only area requiring use of Contract Law's mastery is in Damages under NAS 37 for booking Provision/Contingent Liabilities in relation to the Court cases which may involve Expert for such estimation. 

Let us account then use of Contract Law for Professional Accountants:

1. Financial Reporting is based on intention of management and judgement they make in selection and application of accounting policies. Contracts leaves their intention open before Accountants and Auditors.

2. Auditors need to go through Commercial Substance of transactions and balances to ascertain appropriate accounting. Contracts provide details from which commercial substance of them can be obtained and match with management's judgement. 

3. Investors do rely on Auditor's judgement for such commercial substance and based on presented Financial Statement make their decisions.

4. From basic of identifying the role of accounting parties to the determination of proper classification, accounting date, measurement of economic events and conditions, Contract Law directly guides Professional Accountants.

5. But remedies portion of Contract Laws is merely of any concern as such is in power of the Court of Judges and not in the hands of Professional Accountants. 

It is the most difficult part to ascertain what makes the Sufficient Appropriate Audit Evidence and it determines the type of Audit Procedure to be used. For above mentioned hints, Auditors should locate Contracts with External parties (other than owners) for most part to Audit or initiate Audit properly.