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Avan Corporation just published its financial statements. The president of Avan told the accountants not to...

Avan Corporation just published its financial statements. The president of Avan told the accountants not to include in the annual report any information about a pending lawsuit. The president thought it would only worry the stockholders. Do you think the president is correct in not including this on the annual report? Compose your recommendation to the president.

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Answer #1
According to Federal Securities Laws, Publicly owned company must issue regular financial reports. In this reports, the company should disclose the possible existence of contingent liability of the law suit in the notes of the financial statements. If it belives the company will loose the litigation and there will be material effect on the financial results of the company.  
So, the company have to disclose the litigations or pending lawsuits, if the Avan Corporation has a reason to belive it will loose the litigation and there will be material effects on the financial results of the company.
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