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Firm Overview Revised Contingency Accounting Rules Delayed Again
November 2010
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Significant negative feedback from legal executives and groups caused the Financial Accounting Standards Board (FASB) to delay implementing expanded financial statement disclosures of lawsuits and other loss contingencies. The FASB received 347 comment letters, including criticism from the American Bar Association, large collections of general counsel from major corporations organized by the Association of Corporate Counsel (ACC), and the U.S. Chamber of Commerce. Generally, the objections involve reporting additional information that defendants claim will hurt their prospects to favorably settle litigation.
Absent the delay, the new rules would have applied to public company financial reports in 2011. No revised implementation date was provided, raising the hope from the new rule’s opponents that the revisions will be rewritten or scrapped. The FASB was silent about what changes to the proposal, if any, will occur after additional time passes.
The additional loss contingency rules were first proposed in June 2008. The FASB tabled this first proposal in September 2008 after a similar protest from legal groups and in-house counsel. The board received 239 comment letters about that first proposal.
The FASB then reissued its “Disclosure of Certain Lost Contingencies” in July 2010. The revised rule eliminated the predictive element contained in the first proposal, but still expanded the disclosures when compared to the information (some might say the lack of information) that is now required.
Because the new rules will not be in effect, lawyers preparing their legal confirmation letter for the upcoming audit season will not be asked for additional information beyond what has occurred for decades since SFAS 5 first became in effect.
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