1. Given that a firm is being sued for $12 million over a major product liability claim. Describe the conditions under which GAAP would require the firm to:
   1. accrue a current liability for $12 million
   2. disclose information about the lawsuit in the firm's footnotes
2. GAAP has different rules for making the same determination as mentioned in 1) above for contingent gains. Why do you think GAAP makes this distinction?
3. What types of events typically create contingent liabilities and where might an auditor look to find evidence that these events occurred?
4. Assuming that the auditor identifies an event that (s)he considers a contingent liability and requires footnote disclosure, how might including the disclosure create a "self-fulfilling prophecy?"
5. You studied lease accounting in intermediate accounting. If the firm has long-term, non-cancellable leases that do not meet the capitalization criteria of GAAP, where, if anywhere, would information about these leases be disclosed in the financial statements?