For my discussion post I chose review the 10-K annual report of Meta Platforms on
EDGAR. The report states numerous times that they “ are involved in legal proceedings,
claims, and regulatory, tax or government inquiries and investigations that arise in the
ordinary course of business. Certain of these matters include speculative claims for
substantial or indeterminate amounts of damages. Additionally, we are required to
comply with various legal and regulatory obligations around the world, and we regularly
become subject to new laws and regulations in the jurisdictions in which we operate.
The requirements for complying with these obligations may be uncertain and subject to
interpretation and enforcement by regulatory and other authorities, and any failure to
comply with such obligations could eventually lead to asserted legal or regulatory
action.” The report goes on to describe how Meta Platforms management evaluates and
makes decisions on contingencies. “With respect to these matters, asserted and
unasserted, we evaluate the associated developments on a regular basis and accrue a
liability when we believe that it is both probable that a loss has been incurred and the
amount can be reasonably estimated. If we determine there is a reasonable possibility
that we may incur a loss and the loss or range of loss can be reasonably estimated, we
disclose the possible loss in the accompanying notes to the consolidated financial
statements to the extent material.” This is a good policy for contingencies and they
recorded a value of $41,108,000 as a result.
Some procedures that can be undertaken to determine contingent liabilities in an audit
are to review the minutes of board of directors or shareholders meetings. It is possible
that litigation and other issues would be noted. The auditor can also review loan
agreements, leases, correspondence from governmental agencies, and any contracts
currently in place. It would also be important to obtain letters from Meta’s lawyers
showing all litigation and perform other procedures to test for unrecorded liabilities. Tax
returns could also be used to identify unrecorded liabilities.
Inline XBRL Viewer. Sec.gov. (2022). Retrieved 14 October 2022, from
https://www.sec.gov/ix?doc=/Archives/edgar/data/1326801/000132680122000018/fb-20211231.htm.
Messier, W. Glover, S. Prawitt, D. (2019). Auditing & Assurance Services: A Systematic Approach 11th Edition. McGraw
Hill Education.
