Decision Case 11-2 Sell-Soft is the defendant in numerous lawsuits claiming unfair trade practices. Sell-Soft has strong incentives not to disclose these contingent liabilities. However, GAAP...

Decision Case 11-2

Sell-Soft 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?