A Study On The Attitude Towards Disclosure Of Contingencies

The content of contingencies is an important uncertainty transaction in enterprise.With the innovation of financial instruments and marketing, competition addedincreasingly drama since1990s. The risk of the market increases the uncertaintytransactions in the enterprise operation. The content of contingencies attracts more andmore scholar’s attention. How to accounts the contingencies has become the hot spot oftheoretical research. Through the practice and exploration of several years, accountingstandards about contingencies issued in some countries. Our county also announced thestandards of contingencies in2000and2006which standardizes the accounting process.First, this paper analysis the requirement of disclosure on contingencies, thenreviews the research related to this field. By studying the present situation of disclosure,this paper discovered that the contingencies have becoming a universal disclosure in theenterprise. But the situation of information disclosure cannot up to standard, contingentlegal liabilities and contingent debt guarantee are the most common contingencies.Either in different industries or in different listed sections, the attitude towardsdisclosure of contingencies is quite varies. For the same transaction differentinvestigators may have a different judgment, so the accounting treatment is different. Atpresent, the disclosure of contingencies in listed company still has some problems. Moststudies regard contingencies as a kind of risk, the stock market response negatively tothe contingencies. In this field local research drops behind.Contingency is the intermediate uncertainty transaction. Under the circumstance ofasymmetric information, principal-agent relations increase the contradictions betweenprincipal and agent. For better relationship, the full disclosure of accounting informationis effective at a low cost. Financial report is very important to an enterprise. Theuncertainty of contingencies brings greater risk. Accounting information plays a keyrole in the capital market. Investors can know the past and make the forecasts by thefinancial report. With the fast development of stock market, accounting informationplays an even greater role of signal transduction. The disclosure of contingencies ismore and more important to the owners, and the study in this field has fundamentalsignificance.On the base of theory foundation and previous studies, this paper proposes three hypotheses and adopts various methods of analysis, discuss the attitude towardsdisclosure of estimated liabilities, the attitude towards disclosure of contingent liabilities and contingent assets. The empirical results validate the three hypotheses in the front.The market response negatively to the disclosure of estimated liabilities, and the largerthe contingency the bigger the negative reaction. The disclosure of contingent liabilitiesincreases the negative reaction of estimated liabilities. The disclosure of contingentassets canceled out part of the negative reaction of estimated liabilities.