Question

In: Accounting

Facebook was sued by advertisers for exaggerating performance metrics. In October 2019, Facebook lost a $40m...

Facebook was sued by advertisers for exaggerating performance metrics. In October 2019, Facebook lost a $40m settlement but continues to claim their innocence and is appealing the verdict. Facebook’s FYE is Dec. 31

1a. What is the accounting transaction at October 2019?

1b. What is the accounting transaction at FYE?

2a. What are the audit procedures at October 2019?

2b. What are the audit procedures at FYE?

Expert Solution

1a Accounting transaction at october 2019

Law Suit Loss Account Dr $ 40 m

To Liability on Law Suit Loss Account $40m

(for creating liability for law suit)

1b Accounting transactions at the year end

Show the law suit loss account under extraordinary loss in profit and loss account and Liability is also shown in balance sheet.

In notes Appeal and its chances of success is required to be mentioned for better disclosure purpose.

2a. Audit Procedure at October 2019

Read the document of case order to pay $ 40 M, Check if liability is created in books of account, make sure that entry is supported with the proper documentation, check the frequency of occurrence of such type of transactions, As it is decided in case so may seek expert opinion for the probable success chance of appeal.

2a. Audit Procedure at FYE

Make sure that loss is shown under extraordinary loss in Income Statement,

Make sure that Liability is shown in Balance sheet if Payment is not made.

Check the chances of success of Appeal , Independent expert opinion may be needed for such case success

Court Decision Required to be understood in detail,

Make sure that appeal is filled within time line.

ekkarill92 answered 2 years ago

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