Topics: Balance sheet, Debt, Generally Accepted Accounting Principles Pages: 2 (433 words) Published: November 13, 2011
Sell-Soft Company: Disclose Contingent Liabilities?

Sell-Soft Company: Disclose Contingent Liabilities?
Dana Ferretti
ACC 206
Ms. Paula Beiser
Chapter 10 Apply Your Knowledge: Case 2
November 7, 2010
Sell-Soft Company: Disclose Contingent Liabilities?
There are several lawsuits against Sell-Soft Company. The lawsuits claim that they participated in unfair trading. A strong incentive is making the decision to disclose these contingent liabilities a hard one for Soft-Sell Company. Why would a company prefer not to disclose, how could a bank be harmed if not disclosed, and what is the ethical tightrope companies walk when reporting contingent liabilities? Contingent liabilities are a possible obligation to the company arising from a past adventure. The liability will be confirmed or unconfirmed in one or more future events. (Putra, 2009)They would prefer not to disclose this contingent liability because it could affect their financial statements in a negative way. In order to report this liability, they would have to estimate a value of the liability. Reporting the disclosure of a contingent liability could make investors pass over their company. It could halt any financial loans that they are trying to get. There are endless opportunities that Sell-Soft could loss out of it they report these contingent liabilities.

A bank could be harmed if it is found that a company, like Sell-Soft, does not disclose a contingent liability to the bank when seeking a loan. If Sell-Soft is found guilty, their financial statements will probably suffer a great lose. Banks depend on the financial statements to figure out what value to grant the loan for and also the interest rate to be given. The bank now may lose financial gain and also the monies owed to them for the loan. Also, the bank may lose their credibility to future companies seeking loans.

Companies walk an ethical tightrope when it comes to reporting contingent liabilities. They want their...
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