Oracle Corporation as I have worked with their systems. Oracle currently has a tax and two legal
related contingent liabilities. I have chosen to write about the tax related contingent liability
disclosed on the 10-K report on the SEC website.
Oracle Corporation is under audit by the IRS and various other domestic and foreign tax
authorities regarding income tax, indirect tax matters, and involved in various challenges and
litigation. “As of May 31, 2022, the total amount of unrecognized tax benefits was $7.3 billion, of
which $4.3 billion, if recognized would impact the Company’s effective tax rate.” (Inline XBRL
Viewer, n.d.) The countries include Australia, Brazil, Canada, India, Indonesia, Israel, Italy, Mexico,
New Zealand, Pakistan, Saudi Arabia, South Korea, and Spain, where the amounts under
controversy are significant. “In some, although not all, cases, we have reserved for potential
adjustments to our provision for income taxes and accrual of indirect taxes that may result from
examinations by, or any negotiated agreements with, these tax authorities or final outcomes in
judicial proceedings, and we believe that the final outcome of these examinations, agreements or
judicial proceedings will not have a material effect on our results of operations.” (Inline XBRL
Viewer, n.d.) If these liabilities are unnecessary the liabilities will need to be reversed but if these
liabilities are less than the assessment, than Oracle will need to charge the excess as an expense.
Ernst and Young audited Oracle and stated they obtained an understanding of the company,
“…evaluated the design, and tested the operating effectiveness of the controls over management’s
process for interpretation and application of tax laws and legal rulings, as well as development of
the assumptions and estimates used in the measurement of uncertain tax positions.” (Inline XBRL
Viewer, n.d.) They also performed audit procedures which include reading and evaluating
management’s assumptions and analysis, communication with taxing authorities, and involved
their tax subject matter professional. They utilized the subject matter professional when assessing
the tax positions based on their knowledge of relevant tax laws and experience with taxing
authorities. I feel that E&Y followed the necessary procedures when auditing this tax related
contingent liability.
Walmart's form 10-K to determine what contingencies they may or may not have included. I came
across the contingencies section of the form 10-K where Walmart explains how they handle
contingencies and when they include the liability in the financial statements and the contingency
in the footnotes. "We are involved in a number of legal proceedings. We record a liability when it
is probable that a loss has been incurred and the amount is reasonably estimable. We also
perform an assessment of the materiality of loss contingencies where a loss is either not probable
or it is reasonably possible that a loss could be incurred more than amounts accrued. If a loss or
an additional loss has at least a reasonable possibility of occurring and the impact on the financial
statements would be material, we provide disclosure of the loss contingency in the footnotes to
our financial statements." (United States Securities and Exchange Commission, 2020) A subsidiary
of Walmart, Asda Stores Ltd., is a defendant in more than 35,000 claims in the United Kingdom
due to previous employees claiming that wages were paid unfairly between men and women in
the retail stores and warehouses. The proceedings have not been completed as of the 10-K issue
date the result could not be reasonably estimated of possible losses. Because Walmart's process is
to only report the contingency in the financial statements when the loss can be reasonably
estimated, this issue has not been included in the statement.
The procedures that an auditor should use to search for contingencies is to review tax returns,
meeting minutes, and documentation from law firms. If there are contingencies, then they will
likely be discussed in meetings, or be cause for an impact or audit on the tax returns. When there
are contingencies present, law firm documentation is sure to provide proof. These procedures will
serve as evidence and by reviewing each of these items, the auditor will be able to uncover any
contingencies that were not reported.
References
United States Securities and Exchange Commission. (2020). Form 10-K. Sec.gov.
https://www.sec.gov/ix?doc=/Archives/edgar/data/0000104169/000010416920000011/wmtform10
-kx1312020.htm
Inline XBRL Viewer. (n.d.). Retrieved October 13, 2022, from
https://www.sec.gov/ix?doc=/Archives/edgar/data/1341439/000156459022023675/orcl-
10k_20220531.htm
Messier, W. Glover, S. Prawitt, D. (2019). Auditing & Assurance Services: A Systematic Approach
11th Edition. McGraw Hill Education.
