It can be difficult to put a specific dollar value on warranty and contingent liabilities, so accountants must estimate them. Much like other estimations on financial statements, this leaves “wiggle room” for creative accounting, and two accountants might arrive at very different estimations. What factors might influence these estimations?
Before completing this Discussion, read the report by Boylan (attached).
With these thoughts in mind:
Write at least 200 words answering the following questions:
Discuss examples of common contingent and warranty liabilities that corporations must account for. You may want to select a particular business industry around which to frame your response.
What incentives and pressures may impact managers’ decisions on estimating these types of short-term liabilities? What consequences may result from the estimates on the financial statements and overall financial position of the company?
What guidelines do AICPA and FASB provide about addressing contingent liabilities and