Tesla, Per Tesla’s 10-k there were several contingencies listed as
footnotes to the financial statement. I focused on one of the pending
lawsuits that were listed under footnote 15. This contingency cannot
be reasonably estimated and was therefore disclosed in a note to the
financial statement
In June 2018 a class action lawsuit was filed against the CEO and
members of the board of directors for alleged corporate waste,
unjust enrichment, and breach of fiduciary duties by approving the
stock-based compensation plan awarded to Elon Musk. The
complaint seeked, among other things, monetary damages and
rescission or reformation of the stock-based compensation plan. The
corporate waste charges were dismissed in Sept 2019, however
claims of fiduciary duties breach still stands with the current trial set
for April 2022. (As of the time of filling for the 2022 10-k)
In order to determine if the contingency liabilities are properly
disclosed; the auditor should inquire of management on the policies
for identifying and accounting for contingencies. Auditors should
make examinations of documents pertaining to the contingencies as
well as notes of stockholder, director meetings or other committee
meetings notes, and other documents to obtain more information.
The auditor should also review all correspondence from lawyers and
finally obtain a letter of audit inquiry to the client’s lawyer which can
be used to verify the information provided by management.
By completing these processes, the auditor would be able to
understand how management identifies and defines a possible
contingency. And by reviewing of meeting notes, correspondences,
and other relevant documents the auditor the ability to possibly
determine a contingency that was not deemed important, was
overlooked or attempted to be hidden, by management.
References
Tesla, Inc. Form 10-K For the Fiscal Year Ended December 31, 2021.
United States Securities and Exchange Commission. Retrieved from
https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/0000
95017022000796/tsla-
20211231.htm#item_8_financial_statememts_supplementar
