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Using the company Netflix, Inc. respond to the following questions:
Review the annual report for potential disclosures relating to contingent liabilities and contingent assets.
What do these disclosures suggest about the company’s potential risk? Support your response with facts from the company’s financial statements and annual report. Include a link to those documents so that other students can reference them.
Look at the annual report notes to the financial statements and describe the Netflix handling of lease transactions.
Does the company have significant off-balance-sheet assets and liabilities? Would recording these assets and liabilities on the balance sheet change your view of the financial condition of the company?
http://files.shareholder.com/downloads/NFLX/5087791339x0x938338/FB0485BA-48EF-4457-ABED-CF26A5B21523/10K_Final.PDF
Expert Answer
Contingent Liabilities are the probable in nature which will may occur in future, it’s totally depending on results of uncertain future events, and amounts for such events are reasonably estimated. Re the basic conditions to decide liabilities in frame of contingency. On same line, any assets will emerge only on occurrence of one or more future uncertain events, which are not in control of entity is categorized under contingency term.
Any pending case in court is common example of Contingent Liabilities. If amount of liability is probably estimated correctly than it will considered in balance sheet by considering accrual of expenses. If it’s not possible to know the amount of liability. It only mentions in Notes to accounts in annual report.
Such kind of disclosures states that How much risk Company, currently carrying in terms of creation of future liabilities towards contingencies directly related to company. In this way, one can get idea about company risk carrying capacity, Company’s actual position in terms of liabilities towards outside people.
Besides this, by looking at contingencies mentioned in annual report of company. It only gives us idea about the liabilities that will materialised in future due to some uncertain events. So for taking decision on the basis of annual report of company at present, role of these items has very negligible, unless any strong confirmation about same is there.
