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. b The second non-legal contingent liability are income taxes.
Amazon is subject to US and numerous foreign income taxes. 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). b 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. In the case of Amazon with the open purchase order, the auditor
should review the terms & conditions of the purchase order. 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. 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.
Edgar. (2022). Inline XBRL viewer. Retrieved from
https://www.sec.gov/ix?doc=/Archives/edgar/data/1018724/000101872422000005/amzn-
20211231.htm
