Case 2 The Boeing Company, manufacturer of jet aircraft, is the defendant in numerous lawsuits claiming unfair trade practices. Boeing has strong incentives not to disclose these contingent liabilities. However, financial accounting standards require that companies report their contingent liabilities. Required: 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 is the ethical tightrope that each company must walk when it reports its contingent liabilities? Case 1 Steve Ramos owns apartment buildings in Baguio City, and Tagaytay City. Each property has a manager who collects rent, arranges for repairs, and runs advertisements in the local newspaper. The property managers transfer cash to Ramos monthly and prepare their own bank reconciliations. The manager in Baguio City has been stealing large sums of money. To cover the theft, he understates the amount of the outstanding checks on the monthly bank reconciliation. As a result, each monthly bank reconciliation appears to balance. However, the balance sheet reports more cash than Ramos actually has in the bank. In negotiating the sale of the Baguio City property, Ramos is showing the balance sheet to prospective investors. Required: 1. Identify two parties other than Ramos who can be harmed by this theft. In what ways can they be harmed? 2. Discuss the role accounting plays in this situation.