Discussion 5

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A contingent liability "is a potential obligation to outside parties that arose from past events but for which the final resolution is uncertain, depending on the outcome of future events." (Messier, Glover, & Prawitt, 2023). Contingent liabilities also "include obligations that are not recognized because their amount cannot be measured reliably or because settlement is not probable." (IFRS). I decided to go with Amazon for this discussion. According to Amazon's latest financial statement, one of the contingencies reported is tax contingency. They state that Amazon is "subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes." (Amazon, 2023). Amazon also states that changes in tax laws, regulations, administrative practices, principles, and interpretations may impact their tax contingencies. For them to address tax contingencies, they tested internal controls over the Company's process to assess the technical merits of its tax contingencies. They also involved international tax, transfer pricing, and research and development tax professionals in assessing the technical merits of certain of the Company's tax positions. To recognize the tax contingency, they use a two-step approach. Firstly, they evaluate their tax position by determining if the weight of available evidence indicates it is more likely than not the position will be sustained on audit. Secondly, Amazon measures the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. To search for contingent liabilities, an auditor could read the minutes of board meetings, review contracts, loan agreements, leases, etc., confirm guarantees and letters of credit, and in this case review tax returns, IRS reports, and schedules supporting the entities income tax liability. References Amazon.com, Inc. (2023). Annual 10-K Report. SEC. Retrieved from https://www.sec.gov/ix? doc=/Archives/edgar/data/1018724/000101872423000004/amzn-20221231.htm IFRS. (n.d.). IAS 37 Provisions, Contingent Liabilities and Contingent Assets. IFRS. https://www.ifrs.org/issued-standards/list-of-standards/ias-37-provisions-contingent-liabilities-and- contingent-assets/ Messier, W. F., Glover, S. M., & Prawitt, D. F. (2023). Auditing & Assurance Services: A systematic approach. McGraw Hill Education. Hi Victoria, I also chose Amazon. The only contingency that I found for Amazon was Tax contingencies. They stated that they are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Good points you brought up with speaking with management and legal counsel for any potential liabilities. They could also read meeting minutes and review prior tax returns.
Hi John, very nice post. 16,000 cancelled flights it insane! That opens cases for contingent liability. You also brought up good points regarding the auditing procedure for contingent liabilities. An auditor could also read the minutes of board meetings, confirm guarantees and letters of credit, and review tax returns, IRS reports, and schedules supporting the entities income tax liability.
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