While searching on the EDGAR database to identify a 10-K that
reports a contingent liability, I have identified the annual report of
Walmart Company for the fiscal year 2019. This report shows the
annual total liabilities of Walmart, which states $118,290 million in
2017, $123,700 million in 2018, $139,661 million in 2019, and
$154,943 million in 2020 (Walmart Inc Annual Report, 2021). It has
been identified that the total liabilities of Walmart company for the
year 2022 were $152.969B, which is a 7.27% decline as compared to
the year 2021. For the year 2021, the total liabilities of Walmart
company were $164.965B, which is a 6.47% increase as compared to
the year 2020. Further, the Walmart company has acquired
$154.943B of the total liabilities for 2020, which is a 10.94% increase
as compared to 2019 (Walmart total liabilities 2010-2022: WMT,
2021). In this report, the liabilities of the company were mentioned
clearly not only in the footnotes but in the description. It has been
identified that the liability of Walmart is recognized in the financial
statements. A contingent liability occurred in the company based on
the outcome of an uncertain future event where it has been alleged
that Walmart prevented class members from taking their rest breaks
and full meal as well as failed to pay class members for all hours
worked.
In such a scenario, the auditors of the company must find better
procedures for the contingent liabilities. Here, the steps may include
evaluating materiality, evaluating event likelihood, and looking at
probable events to get the desired outcome. First, the auditor needs
to evaluate the materiality of the contingent liabilities to determine
the right accounting treatment. Based on the financial situation of the
company, the auditor will identify a dollar amount before analyzing
the specifics of the contingent liabilities. If the liability situation is
under the immateriality limit, then there is no need for special
treatment or disclosure. Next, the auditor must estimate the
likelihood of the event as the material amount of contingent liability
can not be estimated. Here, the likelihood can be reasonably possible,
remote or probable. The auditor requires to use their professional
judgement to determine the accountings. It is important for the
company to disclose possible or probable material contingent
liabilities by including the financial statement’s footnote. After that,
the auditor needs to give attention to probable events as it requires
special accounting treatment. At this stage, the auditor should make
sure that the company credits accrued liabilities and debited legal
expenses for any measurable and probable contingent liabilities.
References
Walmart Inc Annual Report. (2021). Retrieved October 11, 2022,
from
https://www.sec.gov/Archives/edgar/data/104169/000010416919
000016/wmtform10-kx1312019.htm
Walmart total liabilities 2010-2022: WMT. (2021). Retrieved October
11, 2022, from
https://www.macrotrends.net/stocks/charts/WMT/walmart/total-
liabilities
