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Legal proceedings and loss contingencies
How 10-Ks report lawsuits and investigations, and when a possible loss gets recorded, with Apple's and Walmart's filings.
The short answer
Lawsuits and government investigations show up in two places in a 10-K. Item 3, Legal Proceedings, describes material pending cases. The financial statement notes apply the accounting rule for loss contingencies: a company records a liability when a loss is probable and the amount can be reasonably estimated, and discloses (without recording) losses that are only reasonably possible. Many big cases sit in that second group, described in words with no amount booked.
Item 3 and Regulation S-K Item 103
Item 103 of Regulation S-K asks for material pending legal proceedings other than ordinary routine litigation incidental to the business: the court, the date filed, the main parties, the facts claimed and the relief sought. A damages claim generally doesn't have to be described if the amount involved is no more than 10% of the company's current assets, and there are specific rules for environmental cases involving the government, with a $300,000 sanctions threshold unless the company sets a different one within the rule's limits. Many large companies keep Item 3 short and point to a note in the financial statements.
The accounting: probable, reasonably possible, remote
| Likelihood of loss | Liability recorded? | Disclosed? |
|---|---|---|
| Probable, and the amount can be reasonably estimated | Yes, the best estimate (or the low end of a range) | Yes, if material |
| Probable, but no reasonable estimate | No | Yes, with a statement that no estimate can be made |
| Reasonably possible | No | Yes, with an estimate or range of loss, or a statement that one can't be made |
| Remote | No | Usually not |
This is the GAAP rule for loss contingencies (ASC 450-20). The words come directly from the filings: Apple's 10-K says it records a liability when it is probable a loss has been incurred and the amount is reasonably estimable, and Walmart's 10-K says it discloses a loss contingency when a loss has at least a reasonable possibility of occurring and would be material.
An example: Apple and the EU Digital Markets Act
Apple's fiscal 2026 10-K describes the European Commission's investigations of the App Store under the Digital Markets Act. On Apr 23, 2025, the Commission fined Apple €500 million in one of them, about how developers can tell users about offers outside the App Store, and ordered changes to its rules. Apple says it has appealed. The 10-K describes the remaining investigations and says further findings could lead to more fines and changes to its business, without giving an amount for them.
For a company of Apple's size, a fine like this is small next to its income. The disclosure matters more for what it says about possible changes to how the business works.
How to read the legal note
- Look for amounts. A recorded accrual or an estimated range of reasonably possible loss is more informative than a list of case names.
- Watch for changes between filings. A new case, a ruling or a settlement often appears first in a 10-Q or an 8-K.
- Check where settlements land. Large legal charges can show up as a separate line or inside operating expenses, and some companies exclude them from non-GAAP figures.
- Read the risk factors too. They describe legal and regulatory exposure in broader terms than the note.
No filing can say how a case will end. The disclosures describe what the company knows and how it has accounted for it so far.
Common questions
Where are lawsuits disclosed in a 10-K?
In Item 3, Legal Proceedings, and in the commitments and contingencies note to the financial statements. Many companies put the details in the note and refer to it from Item 3.
When does a company record a liability for a lawsuit?
When a loss is probable and the amount can be reasonably estimated. If a loss is only reasonably possible, it's disclosed but not recorded.
What is a loss contingency?
A possible loss that depends on a future event, such as the outcome of a lawsuit or investigation. GAAP sets out when to record it and when to disclose it.
Do companies have to disclose every lawsuit?
No. Item 103 excludes ordinary routine litigation, and damages claims generally needn't be described if the amount is no more than 10% of current assets.
Does an appeal change how a fine is accounted for?
Not necessarily. A company can record a fine it is appealing if the loss is probable and estimable. The note explains the treatment.
Disclosures
- Editor holdings
- The editor holds no position in any company named on this page. As of Nov 11, 2026.
- Compensation
- Nobody paid for this page. No affiliate links on this page.
- Sources
- Each company's own SEC filings, linked next to each number.
- Last updated
- Nov 10, 2026
General education, the same for every reader. Not a recommendation to buy, sell or hold any security, and it doesn't consider your situation.
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