Contingent Liabilities Research Articles

Does litigation contingency disclosure in corporate filings matter? Evidence from securities class action lawsuits

PurposeWe investigate the information content of legal contingency disclosures in corporate filings, specifically their usefulness in predicting settlement amounts and mitigation of market response to litigation resolution news.Design/methodology/approachUsing a hand-collected sample of disclosures for settled US securities class action lawsuits, we analyze the contents of the contingent liabilities disclosure before future settlements and classify them into two categories: “pessimistic” and “optimistic” disclosures. We examine whether the tone of disclosure is associated with litigation outcomes, such as settlement amounts and likelihood of incurring material losses, and its effect on market reaction to settlement announcements.FindingsDisclosures with optimistic views on lawsuits are settled for lower amounts, whereas those with more pessimistic views result in higher settlements. Furthermore, while, on average, investors react negatively to litigation resolutions, the market reaction is attenuated (exacerbated) when a prior legal liability disclosure was pessimistic (optimistic). Additionally, investors value disclosure consistency when a litigation outcome is aligned with its legal contingency disclosure. Finally, disclosure consistency is positively associated with managerial ownership as well as the largest shareholder ownership.Originality/valueThis study highlights that the overall tone in legal contingency disclosures is informative and has valuation implications for capital markets. It also highlights the benefits of consistent disclosure, i.e. litigation disclosure aligned with litigation outcomes, as it is viewed positively by investors.

Compatibility between the Auditor and the Institutional Investor and its Impact in Evaluating Requirements with International Accounting Disclosure Standards

The study examined the requirements of accounting disclosure standards from the perspectives of institutional investors and external auditors, highlighting the distinctions between their respective perspectives. due to the importance of the data generated in the financial statements that the institutional investor needs to make investment decisions, and the difference in viewpoints regarding the amount of data disclosure between the two parties. It focusses on outlining what needs to be reported in joint-stock firms' financial statements in a way that promotes objectivity in the financial statements and is transparent, appropriate, and adequate. The study had three main components: the literature and theoretical foundations of accounting disclosure and external auditors comprised the second axis, and the overall methodological framework of the study addressed the first.The idea of disclosure and transparency in the financial statement presentation was covered in the first topic, and the auditor's role and responsibilities in disclosure and transparency in financial reports were covered in the second. As for the third axis, it focused on the practical framework of the research, where an analysis of the sample members’ responses to questionnaire forms distributed to (100) external auditors and (100) institutional investors was presented. The questionnaire questions included three axes, the second axis, which dealt with the income statement's duties under accounting disclosure rules, and the first. It is focused on the balance sheet requirements of accounting disclosure rules. The requirements for accounting disclosure rules for contingent liabilities and events that occur after the budget were covered under the third axis. The research came to several findings after analysing the data for the questions using the SPSS statistical tool. The most important of which were :- The external auditor and the institutional investor have largely agreed upon the requirements of accounting disclosure standards for the income statement. The auditor is particularly interested in the paragraphs that discuss granting credit facilities and avoiding reliance on secondary sources of income, while the investor is more interested in the paragraphs that discuss income and expenses associated with the.fundamental income-generating activities When assessing the accounting disclosure requirements for the balance sheet, the institutional investor and the external auditor have a lot in common. The sections of the financial statements that highlight the uses of money and the requirement to disclose them to users, such as the institutional investor who was concentrating on these lines, are of particular importance to the auditor.due to the fact that they bear in It is fraught with dangers. The external auditor and the institutional investor have essentially reached consensus over their respective points of view when evaluating the accounting disclosure requirements for contingent liabilities and subsequent events . While the investor is primarily focused on the accounting disclosure, the auditor is especially interested in the criteria that revolve around the paragraphs referring to the total value of the provision for losses on loans and advances provided .requirements that place an abnormally high priority on risk In order to set disclosure standards and determine the quantity and quality of data that should be displayed in financial reports while maintaining the transparency necessary to achieve objectivity, the research advises considering the perspectives of the entities that stand to gain from the data generated in those reports as well as the regulatory authorities represented by the external auditor. These guidelines must be updated periodically since investor behaviour changes in response to political, social, and economic factors.

Key Audit Matters reporting for Polish listed companies

Purpose: The main purpose of the article is to identify and characterize the key audit matters (KAMs) indicated during an audit of the financial statements of the largest companies in the Polish market. Methodology/approach: We analyzed the KAMs presented in the verification of the consolidated financial statements of the 30 largest companies listed on the main market of the Warsaw Stock Exchange for 2014–2022. The total sample was 270 auditors’ reports. The basis of the methodology was empirical research; deductive and inductive reasoning were used to formulate the results. Findings: The number of KAMs reported in individual years did not fluctuate significantly, and the average number disclosed for one audit coincides with general global trends. The auditors reported the riskiest areas were for entities from the insurance sector, media and telecommunications, and the fuel industry. The most important KAMs include contingent liabilities, revenue, long-term assets, and goodwill. Research limitations/implications: The main constraint is the limited research sample relating only to the audit of the financial statements of WIG30 companies. However, it covers the largest entities for which auditors indicated the most KAMs and prepared their most extensive descriptions. Originality/value: The article concerns a relatively new research area for which there are few studies on the Polish market, which additionally have a narrow substantive scope. This paper comprehensively characterizes KAMs reported by auditors in the long term.

The metamorphosis of external vulnerability from ‘original sin’ to ‘original sin redux’: currency hierarchy and financial globalization in emerging economies

How has financial globalization changed the nature of external vulnerability of emerging economies? To answer this question, we first present an overview of the changes in international capital flows and cross-border stocks involving emerging economies from the 1970s to the COVID-19 crisis and then identify relevant recent shifts in financial globalization. We adapt the concept of currency hierarchy to the most recent features of financial globalization. We deploy a stylized balance sheet analysis to better understand the metamorphosis of these economies’ vulnerabilities. We find the occurrence of the phenomenon of ‘original sin’ during financial internationalization. In contrast, in more recent times of financial globalization, the diversification of financial flows and investors and the increase of securities denominated in domestic currency have created additional channels of vulnerability, labeled as ‘original sin redux’. We find that the private sector in Southern economies is mostly exposed to these new vulnerabilities. At first sight, it is good news because it preserves the fiscal space of Southern States in the case of capital outflows. However, it might create new contingent liabilities for the public sector. We call for capital account regulation in a broad sense to target these new complex vulnerabilities.

DMCA – A Global Law with Differential Patterns of Enforceability

The use or production of content protected by a copyright without the owner’s consent is known as copyright infringement. Two of the most well-known types of entertainment that have a lot of copyright violations are music and films. Contingent liabilities are sums set aside in the event of a lawsuit, and they can result from infringement cases. New work creators and parties register their creations for copyright protection so they can make money off of their labours . Through approved arrangements or by purchasing the works from the copyright holder, other participants may be given permission to use those works. The goal of those who create new works and register them for copyright protection is to enable themselves to benefit from their labours. Through licencing agreements or by pursuing the obligation from the copyright holder, other parties may be given authorization to use those business operations; nonetheless, a number of circumstances may cause another litigant to file a brief alleging copyright infringement. This article will address copyright infringement issues and go over some important arrangements that can be useful in solving these kinds of problems. The primary statute that will be discussed in this article is the Digital Millennium Copyright Act, including its amendments and global applicability.

Water Banking as a Strategy for the Management and Conservation of a Critical Resource: A Case Study from Tunisia’s Medjerda River Basin (MRB)

The increasingly adverse impacts of climate change (e.g., rainfall patterns, droughts, and floods), coupled with the ever-increasing water demands, are often translated into a contingent liability for water users’ communities. Additional complexities arise due to competing priorities, water rights, and transboundary water sources. Therefore, conventional water management practices should shift toward more comprehensive and responsive integrative approaches, even for systems with limited data. Furthermore, water managers must prioritize dynamic and interactive management techniques for existing systems. One such management technique is water banking, which is the focus of this study. Herein, a dynamic interactive water allocation model, which encompasses the water managers and heterogeneous parties with competing demands, is developed. The voluntary sales of water shares between parties are illustrated through the specific case of the Medjerda River in Tunisia, an excellent example of a transboundary basin with limited hydrologic data and conflicting water use requirements between its upstream and downstream sectors. A set of scenarios is developed for the first analysis with this model: two management scenarios that include the no-water trade and the water banking option; three demand scenarios that include a combination of steady-, low-, and high-water demand conditions; and two hydrologic scenarios that include dry and wet conditions. Based on an economic model, the economic impacts of water banking are calculated using estimates of the costs of water shortages brought to users that illustrate the magnitude. The results show that the water banking technique can improve water resource availability by optimizing the management, operation, and conservation of natural and artificial water storage systems and water distribution infrastructure. Specifically, water banking can offset users’ profit losses during severe conditions (i.e., drought), even with limited hydrologic data. This water management technique would allow the Tunisian government to minimize the economic impacts on farmers from drought and to plan for future uncertainties by optimizing the water storage potential in years of abundant rainfall.

Tax Litigation and Corporate Debt: A Brazilian Perspective

Objective: The study aims to explore the impact of tax litigation on the indebtedness levels of Brazilian firms. The research is motivated by Brazil's high volume of tax disputes and the lack of existing studies focusing on the relationship between tax litigation and firm indebtedness in this particular context.
 Method: The sample includes non-financial firms listed on the Brazilian stock exchange from 2017 to 2022. Linear regression methodology, utilizing panel data and fixed effects, was employed to analyze the relationship. Tax litigation was quantified by summing tax provisions and contingent liabilities, which were then relativized by the firms' total assets. Data were sourced from Comdinheiro software, with additional information manually gathered from company explanatory notes.
 Results or Discussion: The study found a positive relationship between tax litigation and firm indebtedness in Brazil. This suggests that companies involved in more tax disputes tend to have higher levels of debt, pointing towards a complex relationship between the two variables in the Brazilian economic landscape.
 Contributions: This research fills a gap in existing literature by investigating the effects of tax litigation on the capital structure of Brazilian firms. It provides valuable insights that can be beneficial for policymakers, regulatory bodies, and firms in understanding the implications of tax disputes on financial strategies.

PUBLIC-PRIVATE PARTNERSHIP PROCUREMENT TRANSPORT INFRASTRUCTURE DELIVERY: ASSESSING THE MANAGERIAL CAPABILITIES OF PUBLIC-SECTOR ORGANIZATIONS IN AFRICA

The lingering imbalance between infrastructural services demand and supply poses serious threats to the fiscal budget balance from contingent liabilities of African countries. Despite the increasing private investment commitments and adoption of public-private partnership procurement (PPP) options to address the widening infrastructure gaps in Africa, the failure in the delivery of public infrastructure projects is yet a common phenomenon. This study therefore examined the managerial capabilities of public-sector organizations (PSOs), who steer the provisions of public infrastructure, to investigate their readiness to achieve the value for money from private funding and the benefits of PPP options. The study conducted a self-study structured questionnaire survey on professionals in PSOs in Africa, particularly Nigeria, who have been directly involved in the delivery of public infrastructure projects via PPP. The professionals were purposively sampled and the primary data obtained was subjected to descriptive and inferential analysis. The study revealed that the PSOs have internalized about 41 PPP-capabilities for the delivery of public infrastructure projects. Up to 40 PPP-capabilities were exhibited on an average score (41-60%) level, with mean score (MS) value range of 3.13 ≤ MS ≤ 3.70, for the public projects procured. The study established the existence of significant interdependence of p < 0.001, which indicated sufficient correlation between 31 PPP-capabilities and explained the 10 main components of managerial capabilities possessed by the PSOs. Some of the components clustered around public infrastructure planning and adaptability to PPP programme, project delivery parameters and control, suitable public infrastructure procurement knowledge, public policy awareness and innovation, and governance. The study provides information crucial for public infrastructure delivery success towards sustainable national economic recovery and development.

Measuring novice auditor orientation and its impact on judgment

PurposeThe purpose of this study is to construct and test a new measure of auditor orientation using two audit quality-related tasks.Design/methodology/approachThe sample consists of 66 Dutch and US graduate auditing students. Participants complete two tasks: one involving a lease classification and another, supplemental experiment involving a contingent liability judgment. The purpose is to construct a new measure for rules-based/ principles-based orientation. Rigorous, psychometric testing confirms that parts of tolerance for ambiguity (TOA) and need for cognition (NFC), together, form a new construct the authors identify as auditor orientation. The authors next conduct a main and supplemental experiment with novice auditor participants from both the USA and the Netherlands.FindingsThe authors begin with rigorous, psychometric testing using participants from the USA and the Netherlands. The resulting 10-item scale combines parts of TOA and NFC to reflect auditor orientation. The common themes across scale items are high (low) adaptability to complexity and a substance-over-form (form-over-substance) preference for principles-oriented (PO) (rules-oriented [RO]) auditors. Conducting two experiments, results from two distinct tasks confirm our research question; novice auditors classified as RO (PO) are more (less) likely to recommend a more aggressive/client-favorable disclosure judgment.Originality/valueAuditor orientation (i.e. rules or principles) has a significant impact on the application of rules-based or principles-based standards. How the standards are applied, therefore, influences auditor decision-making and thus audit quality. However, there is a paucity of auditor orientation research to date, including a validated measure. The study contributes a new measure for future research in the related accounting standards and audit quality literatures, while also identifying a potentially important construct in auditor training.

Are credit rating agencies users of government accounting information? Evidence from the sovereign rating process

IMPACT Sovereign governments are regularly evaluated by credit rating agencies (CRAs) that perform an analysis of creditworthiness based on mostly public data. This article shows that the data used by CRAs is mainly drawn from economic and statistical accounts rather than government financial statements. Thus, CRAs cannot be considered users of financial accounting information, at least at the sovereign government level. The evidence also suggests that governmental accounting information is neglected because it lacks the fundamental quality of comparability that CRAs require, given that ratings are ordinal measure of creditworthiness. Unless governments begin producing harmonized financial statements, it is unlikely that CRAs will ever become users of accounting information. Meanwhile, CRAs ground their sovereign rating process on harmonized economic and statistical accounts that are lacking important information on government payables, receivables, contingent liabilities and assets.

Fiscal Stress in Kerala? Beyond Off-budget and Contingent Liabilities

Fiscal Stress in Kerala? Beyond Off-budget and Contingent Liabilities

The predictive ability of tax contingencies for future income tax cash outflows

AbstractPrior research shows that contingent liabilities do not accurately predict future cash payments due to the managerial discretion afforded by accounting standards. We examine the extent to which current accounting guidance for a material contingent liability—the reserve for unrecognized tax benefits (UTBs) under Financial Interpretation No. 48 (FIN 48)—generates accruals that are predictive of future income tax cash outflows. We document that UTBs fully unwind as cash tax payments over the subsequent 5 years, suggesting that managers, on average, accurately incorporate their expectations of future tax liabilities. This result persists for firms that are (1) most affected by the implementation of FIN 48, (2) unable to impound detection risk into their reserves, (3) engaged in relatively more ex ante tax avoidance, (4) suspected to have engaged in earnings management through the tax accounts, and (5) subject to plausibly exogenous shocks to tax reporting. Overall, our results suggest that current accounting guidance under FIN 48 for contingent tax liabilities enables managers to accurately report, and financial statement users to reliably predict, future cash obligations.

Do contingent liabilities affect dividend decisions?

PurposeThe paper examines contingent liabilities' effect on the firm's dividend decisions.Design/methodology/approachFixed-effects regression and logit model results estimate the influence of contingent liabilities on firms' dividend decisions using a sample of 2,288 firm-year observations of S&P 500 firms from 2012 until 2022. Robustness checks and results from the 2SLS model further support the authors’ findings.FindingsThe results show that contingent liabilities negatively affect dividend payment decisions. This analysis further demonstrates that the stated effect of contingent liabilities on dividend decisions is more substantial for firms with financing deficits and those with above-industry-average corporate governance scores.Research limitations/implicationsThere needs to be more systematic conceptual reason for measuring uncertainty for firms and its influence on dividend decisions. Future research should use other measures of firm uncertainty to examine the relation of the firm's uncertainty with dividend decisions.Practical implicationsThe authors suggest that contingent liabilities create uncertainty for future cash flows, influence a firm's agency costs and provide credible signals on a firm's prospects to the market. The findings support existing literature that measurable firm-specific variables significantly influence a firm's dividend decisions. The results are robust for an alternative explanation.Originality/valueBy investigating the impact of the influence of contingent liabilities on dividends, the authors extend research on dividend decisions and attempt to provide insights into a firm's dividend decisions by incorporating an off-the-balance sheet item (contingent liabilities) as a significant predictor for dividend decisions.

Effectiveness of Fiscal Announcements: Early Evidence from COVID-19

This paper empirically examines the effectiveness of announced government fiscal measures in the context of the COVID-19 pandemic. First, we build a new panel dataset of fiscal announcements by type, such as above-the line, below-the-line, and contingent liabilities for a wide sample of 136 advanced and developing countries between January 2020 and May 2021. Then, using this newly constructed dataset, we show, using both static and dynamic panel analyses, how various types of fiscal announcements affect alternative proxies of economic activity and across different income groups. We also evaluate how these effects vary depending on the country’s initial conditions (degree of public indebtedness or the business cycle positioning). Fiscal announcements also matter in terms of external credibility since they have an effect on government bond spreads. Ultimately, our findings suggest why it might be critical to consider the “news” effect of a fiscal measure by type rather than at the aggregated level.

Развитие учетной практики применения оценочных значений в фокусе раскрытия отчетной информации о ESG-факторах и рисках

The purpose of the study is to analyze the current practice of determination and disclosing of accounting estimates specifically provisions and contingent liabilities in the financial statements of Russian and foreign companies in the oil and gas, metals and mining and energy industries. As a result of the study, the use of accounting estimates in relation to the disclosure of ESG indicators was analyzed. Th e best practices for their disclosure in relation to financial estimations were identified. Based on the content analysis and comparative analysis of public reports, an industry-specifi c ranking of the disclosure quality was carried out. Th e practical significance of the study lies in the possibility to increase the transparency of corporate reporting for stakeholders through the introduction of best practices of the non-fiancial facts impact in terms of corporate governance.

Does inflation trigger early repayment on Covid-19 UK guaranteed loans?

ABSTRACT The UK government underwrote more than 1.68 million business loans totalling £78.4bn during the COVID-19 pandemic. Given that the Bounce Back Loan (BBL) had a 100% guarantee and the Coronavirus Business Interruption Loan Scheme (CBILS) 80%, the public sector contingent liability is very large. In this article, we explore whether or not the recent and dramatic rises in UK inflation have prompted firms with COVID-19 BBL and CBILS guaranteed loans to repay their outstanding debt early (in advance of the full 6-year loan term as specified in the original loan agreement). Our results show that this was indeed the case with increasing inflation exerting a strong and positive effect on early loan repayment on both guarantee schemes. This is consistent with the firm’s debt aversion and a desire to reduce existing debts in anticipation of a future economic recession, liquidity problems and high interest rates.

Level of Disclosure of Environmental Provisions and Contingent Liabilities

Disclosure allows accounting to achieve its main objective, that of providing useful and reliable information to its users. Thus, based on the Theory of Disclosure, this study aims to identify the level of disclosure of provisions and environmental contingent liabilities of companies with high potential for pollution. For this, descriptive research with a qualitative approach was carried out, applying the content analysis technique in the financial statements between the years 2010 and 2019. For data collection, a checklist prepared according to the established criteria was used. by the Accounting Pronouncements Committee No. 25 (CPC 25) for the recognition and disclosure of provisions and contingent liabilities of an environmental nature. The findings reveal a low disclosure of the established items, despite the growing number of affirmative observations in the last three years. As for the level of disclosure, the results showed that the most prominent segment was the extraction and treatment of minerals, with a percentage of 73% in the group of companies listed on the ISE. Regarding the analysis of the groups, the average of the companies listed and not listed on the Corporate Sustainability Index (ISE) was calculated, showing through the Student's T test the existence of a statistically significant difference between the averages, of 27.66 and 15 ,21, respectively, accepting and rejecting the research null hypothesis. However, the need for other analysis methods was identified to confirm whether the companies included in the ISE have a higher level of disclosure.

An IFRS Decision Heuristic—A Model for Accounting for Credit Card Rewards Programme Transactions

Guidance on the appropriate accounting treatment of a credit card rewards programme (CCRP) transaction after the effective date of IFRS 15 is needed due to current uncertainty and inconsistencies. The objective of the research was to develop a theoretical model for the accounting treatment of CCRP transactions after the effective date of IFRS 15 by considering the relevant literature, including IFRS. This non-empirical qualitative literature study utilised document analysis and model building to construct the theoretical model. To provide practical guidelines in accounting for a CCRP transaction, a model embedded in a decision tree was developed as a heuristic to provide for various possible accounting treatments. It was found that a CCRP transaction can be accounted for in terms of IAS 37 Provisions, Contingent Liabilities and Contingent Assets (as an expense and provision), in terms of IFRS 9 Financial instruments (as an expense and financial liability), or in terms of IFRS 15 Revenue from contracts with customers (as a deferred revenue). The value of this article is that it provides answers in a clear and concise matter on a single page dealing with all the various elements of a CCRP transaction that impacts the accounting treatment. The CCRP theoretical model developed could eliminate uncertainty amongst CCRP management and increase the decision-usefulness of financial information.

Determination of Homocysteine and Vitamin B12 level in blood Patients Rheumatoid Arthritis in KirKuk Governorate

Many of the clinical studies have clearly demonstrated the direct link between the high levels of homocystien in serum and Rheumatoid Arthritis and homocystien shows its impact by imbalance self- oxidized when high concentration in blood, which leads to a group of deeply rooted Free radicals and Rheumatoid Arthritis RA of Disease Fades inflammatory caused by free roots which cause injury to the damage or the total deficit circumstantial there are some features may occur to the formation of a contract of rheumatic smal
 Objective:. The aim of this study to assess the level of homocystien and vitamin B12patients suffering from Rheumatoid Arthritis compared with healthy people and operate in order relationship with vitamin B12 and its impact causing high levels of homocystien disease Rheumatoid Arthritis
 The way:- collecting blood samples (25) people healthy people (Control) (15) of the males and 10 females aged from (25-65) and (50) people of the patients (25) of the males and (25) of the females aged from (25-65) and those suffering from Rheumatoid Arthritis and measurement of the level of homocystien and vitamin B12.
 The findings and conclusions:- found that there is a moral rise in the level of homocystien when a group of patients suffering from Rheumatoid Arthritis compared with healthy group at the level of contingent liabilities (P≤0001) found moral decline in the level of vitamin B12 when a group of patients suffering from Rheumatoid Arthritis compared to a healthy and at the level of contingent liabilities (P≤0.0005).
 Word: homocystien , vitamin B12 , Rheumatoid Arthritis

A Guaranteed Deterministic Approach to Superhedging: The Relationship between the Deterministic and Probabilistic Problem Statements without Trading Constraints

We consider a guaranteed deterministic approach to the discrete-time superreplication problem in which it is required to cover a contingent liability on a written option in all feasible scenarios. These scenarios are described by a priori given compact sets depending on the price history: at each time instant, the price increments must lie in the corresponding compact sets. We assume no transaction costs. The problem statement is game-theoretic and leads to the Bellman--Isaacs equations in pure and mixed “market” strategies. In the case of no trading constraints, we study the relationship between the Bellman functions in the “deterministic” and “probabilistic” statements of the superhedging problem. As established under very general conditions, the “probabilistic” Bellman function does not exceed the “deterministic” counterpart. Sufficient conditions for their coincidence are found.