FASB Disappoints the Lawsuit Crowd on Contingency Reporting

By September 25, 2008Briefly Legal, Economy

From the Financial Accounting Standards Board:

Summary of Decisions Reached – FASB Board Meeting 9-24-08

The Board decided on a plan for redeliberations of its Exposure Draft, Disclosure of Certain Loss Contingencies. The Board directed the staff to prepare an alternative model that attempts to address the concerns that certain constituents raised about the Exposure Draft. This alternative model will be field tested along with the model in the Exposure Draft. The staff expects that field testing will take place during November and December 2008, and roundtable meetings will occur in either early January or March 2009. Board redeliberations are expected to begin in late March or April 2009. The Board also decided that any final Statement on this topic will be effective no sooner than for fiscal years ending after December 15, 2009. 

FASB had proposed expanded the reporting of contingent liabilities, drawing extensive opposition from the business community. Corporations, attorneys and trade associations like the NAM protested the possibility that publically traded corporations would have to detail the potential costs of litigation, arguing that  the information could benefit trial lawyers suing the companies, violate attorney-client privilege and in the end would be so speculative as to not serve investors.

The 239 comments submitted to FASB were overwhelmingly negative, with only organized labor and “socially conscious” investors expressing support. The NAM comment letter is available here, in which the association calls on FASB to delay implementation of the new reporting standard and instead work through the issues one more time.

FASB has other issues before it that are more pressing. Since that letter, the financial crisis has exploded, raising the stakes for corporate reporting and audits. This is certainly not the time to be imposing new and potentially damaging reporting requirements.

Apparently the FASB agrees, hence the board’s decision Wednesday. A good decision.

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