Research On Problems Of Accounting Treatment Of Contingencies

Contingencies have large uncertainty, the judgment of possibility and estimate ofamount largely depends on accountants’ professional competence and experience. So it isan important method for senior managers to manipulate profit illegally. If seniormanagers take illegitimate accounting treatment to manipulate profit, it will have anegative impact on the quality of financial statements, and will be detrimental to theinterest of shareholders, creditors and other stakeholders, and not conducive to thelong-term development of the company. This paper collected and processed the data of671A-share companies listed in ShangHai Exchanges, described the situation of theaccounting behavior of these companies. These companies took accounting treatmentwith contingencies illegitimately. The comprehension of contingencies was not thoroughand the accounting recognition of it was still not enough. The accounting measurement ofthe contingent obligation was difficult and subjective. Companies did not record theexpected loss at all. The disclosure positions of contingent liability, provision and relatedcontingencies were so confused. Then it analyzed the reason from the objective aspectand subjective aspect, assumed and tested the non-institutional factors which may affectthe accounting treatment of contingencies, and found that there were still somedrawbacks in China Accounting Standards and the size and profit of a company all had apositive impact on the accounting treatment of contingencies.At last, combining with drawbacks of China Accounting Standards andnon-institutional factors, it proposed the recommendations to improve the accountingtreatment of contingencies, such as perfecting China Accounting Standards, strengtheningthe external supervision of the small-scale or poor performance company, improving theappointment mechanisms of general managers, strengthening the training of accountants’ professional skills and etc.