Soft-Sell is the defendant in numerous lawsuits claiming unfair trade practices. Soft-Sell has strong incentives to not disclose these contingent liabilities. However, GAAP requires 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 ethical tightrope must companies walk when they report contingent liabilities?