The company to highlight on their contingent liabilities is Merck & Co., Inc. (MRK).
One of the liabilities in the financial statements is listed under contingent liabilities but in the notes broke
down in the fair value category. Listed in the footnotes is the description of the holding of these funds for
future royalty payment on a joint venture that was terminated. In preparation of having to pay these to the
investors Merck has set aside in their contingent liabilities the ability to carry the fair market value of this
amount in their statements. The liability recently took an increase when the discount rate on the value was
reduced by 2%. While the company only disclosed this liability in the footnotes there is amble detail and
breakdown on all considered in the contingent liabilities’ holdings.
While auditors can ask management for a list of contingent liabilities it is up to the auditor to research this
further. The auditor can perform further inspection on the reporting of the dissolution of the joint venture
to ensure that any future expenses for this separation are being accounted for. Where they will find in the
contingent liabilities the withheld fair value on the products sold under this umbrella and allocated
accordingly. Garcia writes that four procedures an auditor can take to search for contingent liabilities are
in the following. Search for undisclosed contingencies in minutes of board meeting to find potential
problems, undisclosed lawsuits for example. Evaluate materiality and determine if the correct amount is
allocated for the purposes, if this seems inflated or to low. Evaluate event likelihood by determining the
actual posing threat, is this highly probable or just a maybe. This can also be used if an amount for the
potential problem is undeterminable. Lastly, pay attention to the "maybe" column on contingent liabilities.
Often times these need to be only disclosed in the footnotes however, “liabilities that are probable and can
be estimated, need a specific accounting journal entry" (Garcia, 2016).
Garcia, M. (2016, October 26). GAAP guidelines for contingent liabilities. Small Business - Chron.com.
Retrieved October 13, 2022, from https://smallbusiness.chron.com/gaap-guidelines-contingent-liabilities-
67481.html
SEC. (2022). Merck & Co., Inc. MRK on NYSE. Edgar Entity Landing Page. Retrieved October 13,
2022, from https://www.sec.gov/edgar/browse/?CIK=310158&owner=exclude
