Kroger evaluates contingencies based on the best available resources and evidence.
Additionally, Kroger believes that having allowances for loss have been both necessary and
reasonable for contingent liabilities (SEC, 2018). Through evaluation, two principal
contingencies of insurance and litigation were discovered. The litigation contingency appears
more prominent for me because it is inclusive of all claims and lawsuits that arise during normal
business operations. c Litigation contingent liabilities can include antitrust lawsuits, wage and
hour lawsuits, civil rights or product liability lawsuits (SEC, 2018). c In the case of the selected 10-
K Kroger had already determined that these lawsuits had already become class actions and/or
sought substantial damages. Considering the nature of Kroger’s business most of the times the
results of these suits are unforeseeable but probable enough to be evaluated. However, Kroger
believes that regardless of the outcomes of these lawsuits there will not be a material effect on
the company’s financial position, operations, or cash flows. Due to this belief Kroger chose to
notate the contingent liability instead of recognizing it in the financials (SEC, 2018).
It is essential for auditors follow their procedures to find undisclosed contingent liabilities. In
the case of finding litigation contingent liabilities such as those of Kroger auditors would want to
perform extended search procedures (Garcia, 2017). This could include the review of company
IRS reports for unsettled income tax liabilities, the review of board of director meetings where
the discussion of current and/or pending lawsuits may have taken place and review legal
expense accounts as the support for any transactions in those accounts could shine light on
contingent liabilities (Garcia, 2017).
References:
Garcia, M. (2017, November 21). Audit Procedures for a Contingent Liability. Retrieved October
13, 2022, from https://smallbusiness.chron.com/audit-procedures-contingent-liability-
75889.html
SEC. (2018, February 3). Kr_Current_Folio_10K. Retrieved October 13, 2022, from
https://www.sec.gov/Archives/edgar/data/56873/000155837018002753/kr-
20180203x10k.htm
