- Identify common disclosures related to current liabilities
Let’s refer back to The Home Depot annual report for the fiscal year ended February 2, 2020 one last time.
Disclosures for current liabilities are relatively straightforward for the most part. They include the standard statement on using estimates (page 38):
Use of Estimates
We have made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities, and reported amounts of revenues and expenses in preparing these financial statements in conformity with GAAP. Actual results could differ from these estimates.
And leases (p 38–39) that include both the policy for recording the asset granted under the lease and the liability:
…We categorize leases at their inception as either operating or finance leases. Lease agreements cover certain retail locations, office space, warehouse and distribution space, equipment, and vehicles. Operating leases are included in operating lease right-of-use assets, current operating lease liabilities, and long-term operating lease liabilities in our consolidated balance sheets. Finance leases are included in net property and equipment, current installments of long-term debt, and long-term debt, excluding current installments in our consolidated balance sheets…
Later, on pages 46–49, the company discloses more details about leases and related assets as well as future minimum lease payments.
In addition to these standard disclosures required by GAAP, The Home Depot includes a statement on its insurance liability (p 41) because (a) it is a significant amount, and (b) the company is largely self-insured, which is also significant and requires disclosure:
We are self-insured for certain losses related to general liability (including product liability), workers’ compensation, employee group medical, and automobile claims. We recognize the expected ultimate cost for claims incurred (undiscounted) at the balance sheet date as a liability. The expected ultimate cost for claims incurred is estimated based upon analysis of historical data and actuarial estimates.
Our self-insurance liabilities, which are included in accrued salaries and related expenses, other accrued expenses and other long-term liabilities in the consolidated balance sheets, were $1.3 billion at February 2, 2020 and February 3, 2019.
We also maintain network security and privacy liability insurance coverage to limit our exposure to losses such as those that may be caused by a significant compromise or breach of our data security. Insurance-related expenses are included in SG&A.
Short term debt is described in note 4:
4. DEBT AND DERIVATIVE INSTRUMENTS.
We have commercial paper programs with an aggregate borrowing capacity of $3.0 billion. All of our short-term borrowings in fiscal 2019 and fiscal 2018 were under these commercial paper programs. In connection with these programs, we have back-up credit facilities with a consortium of banks for borrowings up to $3.0 billion, which consist of a 364-day $1.0 billion credit facility and a five-year $2.0 billion credit facility, which expires in December 2022. In December 2019, we completed the renewal of our 364-day $1.0 billion credit facility, extending the maturity from December 2019 to December 2020.
There are also extensive required disclosures for income taxes and finally, an unusually short disclosure for contingent liabilities on page 60:
11. COMMITMENTS AND CONTINGENCIES
At February 2, 2020, we had outstanding letters of credit totaling $384 million, primarily related to certain business transactions, including insurance programs, trade contracts, and construction contracts.
We are involved in litigation arising in the normal course of business. In management’s opinion, any such litigation is not expected to have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.
And although not an actual liability, but rather a significant event that happened after the financial statement audit but before publication, the company has disclosed the potential adverse effects of the 2020 pandemic:
13. SUBSEQUENT EVENTS
The recent outbreak of the novel coronavirus COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on the U.S. and global economies and created uncertainty regarding potential impacts to our supply chain, operations, and customer demand. The pandemic has impacted and could further impact our operations and the operations of our suppliers and vendors as a result of quarantines, facility closures, and travel and logistics restrictions. As a result of COVID-19, we have reduced store operating hours, expanded our paid time off policy for associates, and shifted certain store support operations to remote or virtual. We are also taking steps in our stores to manage foot traffic to better protect our customers and associates. In addition, in certain jurisdictions, we have had to cease sales of or delay commencement of work on certain services deemed “non-life-sustaining.” While the disruption caused by the pandemic is currently expected to be temporary, there is uncertainty regarding its duration. Therefore, while we expect the pandemic to impact our results of operations, financial position, and liquidity, we cannot reasonably estimate the impact at this time.
As a result, the Company is taking action to enhance its financial flexibility. In March 2020, we expanded our commercial paper programs from $3.0 billion to $6.0 billion and suspended our share repurchases. We also entered into an additional 364-day $3.5 billion credit facility in March 2020, which together with our existing credit facilities backs up our expanded commercial paper programs.
You can refer to the AICPA November 2017 Financial Reporting Framework for Small- and Medium-Sized Entities Presentation and Disclosure Checklist for more details on presentation and disclosure of current liabilities and subsequent events.
And for a bit more involved and descriptive disclosure on warranties, commitments, and contingencies, see Ford’s 2019 Annual Report, Note 27, pages 63–64.