A contingency liability as a prospective responsibility that occurs since the outcome of future
event is unclear. For this week’s discussion I chose to research Walmart. This is a company that
has several pending litigations and other contingent liabilities. It is seen from their 10K report that
the company has made the necessarily accruals to the consolidated financial statement. Accruals
however have not been made for the liability is not probable or cannot be estimated (Walmart,
2019).
One of the contingencies reported was the ASDA Equal Values Claims. There is currently a 30,000
equal value claim before an employment tribunal in Manchester. It is claimed that the work
performed by the female employees at Asda retail stores, a subsidiary of Walmart, is equal to the
work being performed by men in the same position in the distribution warehouses (Walmart,
2019). Since Walmart is unable to predict the number of claimants or money this will cost, they
did not provide the specific contingencies.
To search this contingency, some procedures that can be used include the following:
Examinations of documents for pending lawsuits:
Ex: invoices or court records.
Discussions with management regarding policies and procedures within the company to identify,
evaluate and account for contingent liabilities.
Legal letter that describes and evaluates litigations, claims or assessments.
Written representation from management that litigation, claims and assessments have been
disclosed.
The company that I decided to go with is Tesla Inc. Between September 1st, 2016, and October
2016 5th, 2016, seven lawsuits were filed in the Delaware Court of Chancery by the stockholders
of Tesla that challenged the acquisition of SolarCity Corporation. They claimed that the board
members breached their fiduciary duties, and while the company filed a motion to dismiss this
was rejected by the judge in these cases. While they had a case set for trial on March 2020,
COVID-19 fears caused this to be delayed until much later Eventually these were all dismissed by
the judge with “prejudice”. This means that it cannot be retried in court again. This contingency
couldn’t properly be stated and was in the footnotes as a result.
There are many procedures that an auditor might use to search for contingent liabilities such as
breach of fiduciary duties. Auditors should always take the time to review any contracts or legal
documentation regarding property acquisition and executive compensation. Reviewing the
minutes of the board meetings is an effective way to monitor and identify potential breaches of
contracts and understand future potential lawsuits.
References
Tesla SEC Filing 10-K for December 31, 2021. 10-K. (n.d.). Retrieved October 12, 2022, from
https://www.sec.gov/Archives/edgar/data/1318605/000095017022000796/tsla-20211231.htm
Walmart. January 31, 2019. 10-K Annual Report. Retrieved from:
https://www.sec.gov/archives/edgar/data/0000104169/000010416919000016/wmtform10-
kx1312019.htm
