One of the contingent liabilities that I found in the Boeing 2021 10-K filing was for changes made
to the severance liability. In 2020, Boeing recorded over $650 million in severance costs due to
employees expected to be let go either voluntarily or involuntarily due to the economic
uncertainty surrounding the pandemic. The number of employees expected to be let go was
reduced from 26,000 to 23,000 and then to 19,000 over the course of 2021. These adjustments
were combined with payments already made to reduce the remaining expected payouts to just
$11 million at the end of 2021. This liability was not specifically noted in the financial statements
but was found in the “Liabilities, Commitments, and Contingencies” sections of the notes. d
Two of the possible ways that auditors may use to search for liabilities like this are “Reading the
minutes of meetings of the board of directors, committees of the board, and stockholders” and
“Inspecting other documents for possible guarantees or other similar arrangements.” (Messier et
al., 2017) When a company is planning for the possibility of letting upwards of 26,000 employees
go, this decision would be discussed at length with all levels of management and the board. Had it
not been initially revealed to auditors, indications of this decision would have been evident either
in the minutes or in other documentation that the auditors would have access to. If the auditors
had selected this route, they could have a list of keywords or phrases they would be looking for
within the minutes to determine if any further investigation would be needed and what impact
any major event or transaction would have. If the planned layoffs and the severance recognition
were found in the minutes, auditors would review the company compensation and benefits plans
to determine if the severance packages were in line and being handled and recorded
appropriately.
Decided to delve into Walmart's contingencies. The company details in its 10KK that "the Company
has made accruals concerning these matters, where appropriate, which are reflected in the
company's consolidated financial statements." The details for these legal proceedings are as
follows; Asad stores, limited, "a wholly owned subsidiary of the Company," is involved in an equal
values lawsuit beginning in 2008 that was brought before an Employment Tribunal in Manchester.
This legal issue arose in the UK concerning present and former store employees. These individuals
claim that the work performed by the employees in the Asada retail store is equal to the jobs
performed by employees working in the warehouse and distribution facilities; however, there is a
disparity in pay. They claim that this disparity stems from gender inequality. The difference in pay
between these positions impacts women because more women work in retail stores while more
men work in warehouses and distribution centres. The difference in pay is not objectively justified.
The claimants are "requesting differential back pay based on higher wage rates in the warehouse
and distribution facilities and higher wage rates on a prospective basis." d d
It was ruled in October 2016 that the employment tribunal decided claimants could compare their
positions in retail stores to those in warehouses and distribution centres. The ruling was appealed
and scheduled to be heard by the UK Supreme Court in July 2020. Currently, "the company cannot
predict the number of such claims that may be filed, and cannot reasonably estimate any loss or
range of loss that may arise from these proceedings. Accordingly, the company cannot assure as to
the scope and outcomes of these matters and no assurance as to whether its business, financial
position, operating results or cash flow will not be materially adversely affected." d
A procedure that auditors might use the search for contingencies such as the one presented
above would be by "examining documents in the entities records such as correspondence and
invoices from attorneys for pending or threatened lawsuits. Even though the amounts of the legal
expense account may be immaterial, the auditor normally examines the transactions on the
account. This examination aims to identify actual or potential litigation against the entity. The
account analysis can also be used to develop a list of attorneys who the entity has consulted." as
well as requesting that the attorney describe and evaluate each pending or threatening litigation,
this could include the progress on the case, additional actions the entity plans to take and the
likelihood of favourable or unfavourable outcome the potential amount of loss. This would give
the auditor a clearer picture and understanding of what may or may not be material to the
financial statements to present the most accurate information for shareholders and investors.
References
Messier, W. Glover, S. Prawitt, D. (2019). Auditing & Assurance Services: A Systematic Approach
11th Edition. McGraw Hill Education.
Wamart Inc. SEC Filing 10-K for fiscal year ended January 31, 2020. Retreived from
sec.gov/Archives/edgar/data/104169/0000104169200000011/wmtform10-kx1312020.htm
Boeing. (2021). United States Securities and Exchange Commission Form 10-K. Inline XBRL Viewer.
Retrieved October 13, 2022, from
https://www.sec.gov/ix?doc=%2FArchives%2Fedgar%2Fdata%2F12927%2F000001292722000010%2
Fba-20211231.htm#i96cbbb599c964cb4a125b720672b6568_286
Messier Jr., W. F., Glover, S. M., & Prawitt, D. F. (2017). Auditing & assurance services: A
systematic approach. In No Title (10th ed.). New York, NY: McGraw-Hill Education.
