Avery, Clarence G.||Thistlethwaite, Robert L.
M.S. (Master of Science)
Department of Accountancy
In the preparation of financial statements it is necessary to give consideration to items of a contingent nature. Contingent liabilities affect the usefulness of statements in interpreting the future potentialities of a business. The financial condition of a company may be just as seriously affected by contingencies as by items of a real and present nature. Contingent liabilities and their presentation on the balance sheet were selected for study because this area of the disclosure problem has not fulfilled the general and particular needs of the various interested parties concerned with financial reports such as stockholders, creditors, the general public, auditors, and the Security and Exchange Commission. The purpose of this study was to develop a method for the presentation of contingent liabilities on the balance sheet. In order to accomplish this objective, the following questions were resolved: 1. What is the history of the presentation of contingent liabilities on the balance sheet from 1917-1966? 2. What is the problem of reporting for contingent liabilities? 3. Is it possible to determine generally accepted methods of contingent liability presentation from the standpoint of stockholders, creditors, the general public, auditors, and the Security and Exchange Commission? Data for this study was derived mainly from library research. This included principally the professional journals of accountancy and other literature of the accounting profession. The problem of reporting contingent liabilities is the determination of the existence of possible contingent liabilities at the balance sheet date. The auditing procedure for contingent liabilities is directed toward the detection of the items, and their possible future effect on operations and financial position. A major conclusion of this study is that generally accepted methods of disclosure of contingent liabilities are by means of parenthetical remarks, accompanying notes, or descriptions under a special contingent liabilities heading. A related conclusion is that the accounting profession can add to the accounting concepts it has developed, which have provided an adequate framework for the presentation of contingent liabilities on the balance sheet, by determining and stating the limits and nature of the meaning of judgment in the light of the circumstances surrounding the contingent item. Confronted with wide variations in the extent of disclosure of contingent liabilities, the accounting profession should adopt measures to develop a framework within which the accountant may exercise judgment in adequate disclosure in financial statements. A detailed study should be made to determine the criteria the accountant uses in determining judgment in the light of the circumstances surrounding the contingent item.
Bunjes, Dennis N., "Contingent liabilities and their presentation on the balance sheet" (1971). Graduate Research Theses & Dissertations. 1950.
vii, 89 pages
Northern Illinois University
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