One company I recognized with contingent liabilities was GoPro Inc.
GoPro facilitates personal experiences through production of
cameras and the sharing experience on their social app. On their K-
10 of Dec. 31, 2019 there is a section in the contingency notes for
legal proceedings. GoPro was dealing with lawsuits from
shareholders over derivatives. These lawsuits were similar to lawsuits
filed in the past that were dismissed by the court. Lawsuits were filed
by shareholders over derivatives in 2016, 2018 and 2019. There are
notes in the financial statements mentioning the lawsuits but they
are not in the financial statements. It is possible that GoPro has an
expectation that current lawsuits may also be dismissed and
therefore did not have to be accrued in financial statements.
b Some procedures that Auditors can use to identify these
types of contingencies are reviewing contracts for derivatives and
also obtaining a legal letter. The auditor can obtain contracts for
derivatives by requesting management to request from the legal
department. Auditors should then read through the contracts for
derivatives to identify any agreements that violate legal standards.
The Auditor can hire a lawyer with experience in corporate law to
assist in the audit. The auditor can also request of management to
obtain the legal letter. In the legal letter the lawyer will divulge
information regarding litigation. Lawyers will learn the details about
all the lawsuits filed by shareholders involving the derivatives.
Messier, W. F., Jr., Glover, S. M., & Prawitt, D. F. (2017). Auditing &
assurance services: A systematic approach (10th ed.). New York, NY:
McGraw-Hill Education.
