Sell-Soft Corporation is the defendant in numerous lawsuits claiming unfair trade practices. Sell-Soft has strong incentives not to disclose these contingent liabilities. However, GAAP requires that companies report their contingent liabilities.
Requirements
1. Why would a company prefer not to disclose its contingent liabilities?
2. Describe how a bank could be harmed if a company seeking a loan did not disclose its contingent liabilities.
3. What ethical tightrope must companies walk when they report contingent liabilities?
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