The company I have chosen for contingent liabilities is Amazon. The last 10-K reported was for the
year ending December 31, 2021. It appears they have a few legal contingencies and three (3) non-
legal contingent liabilities. The first non-legal contingency is they have open purchase orders for
inventory and capital expenditures which will be due in the next twelve (12) months, however, the
open purchase orders are cancellable in full or partial. d The second non-legal contingent liability
are income taxes. d Amazon is subject to US and numerous foreign income taxes. d According to
their 10-K, Amazon has $3.2 billion accrued tax contingencies, which $1.6 billion if fully recognized
would decrease their effective tax rate. (Edgar, 2022). d The third non-legal contingency which they
are disputing the refunds or credits which they claim are non-income taxable.
To identify contingent liabilities, an auditor would review minutes of meetings, review major
contracts and correspondences, compare with the prior year, and discuss with officers and staff. d d
In the case of Amazon with the open purchase order, the auditor should review the terms &
conditions of the purchase order. d According to Amazon’s footnote, the purchase order is generally
cancellable in full or in part, however, this should be reviewed to ensure the footnote is accurate. d
For the tax contingency, the auditor should determine that Amazon is in compliance with the law
and regulations of the US and foreign entities especially since the income tax contingencies have
been carried over year to year.
The company I have chosen to investigate for contingent liabilities is Amazon. The last 10-K
reported for the company year ends December 31, 2021. When researching Amazon, the
contingent liabilities of the company are U.S. income taxes and foreign income taxes. Foreign
income taxes are subject to U.S. taxation. The contingent liability is shown in the footnotes as well
as the financial statements (Inline XBRL Viewer). Some procedures auditors may use to search for
contingent liabilities are probability of occurrence, and journal entries for probable events. For
probability of occurrence, it can be recognized in three levels which are remote, reasonably
possible, and probably, only the possible and probable contingencies will be disclosed in the
footnotes (Audit Procedures for a Contingent Liability). Since the income taxes are described in the
footnotes, we can see that probability of occurrence was used. For journal entries for probable
events, you would need to record probable contingencies on financial statements therefore
income taxes are a probable contingency because it is recorded (Audit Procedures for a
Contingent Liability). This means you could also use this procedure to realize this contingency.
References
Audit Procedures for a Contingent Liability. (n.d.). Your Business.
https://yourbusiness.azcentral.com/audit-procedures-contingent-liability-29381.html
Inline XBRL Viewer. (n.d.). Www.sec.gov.
https://www.sec.gov/ix?doc=/Archives/edgar/data/1018724/000101872422000005/amzn-
20211231.htm
Edgar. (2022). Inline XBRL viewer. Retrieved from
https://www.sec.gov/ix?doc=/Archives/edgar/data/1018724/000101872422000005/amzn-
20211231.htm
