FASB Considering Increased Disclosure of Potential Lawsuit Liabilities
During its August 19, 2009 board meeting, the Financial Accounting Standards Board (FASB) re-opened discussions of a controversial proposal requiring companies to disclosure more information about actual and potential lawsuits, according to an article in the American Banker. In 2008, FASB pushed for changes to FAS 5 (contingent liabilities) that would expand reports of potential outcomes of pending or anticipated lawsuits. According to a FASB report, the proposed changes were based on investor complaints that the current reporting requirements failed to provide sufficient information to assess the impact of litigation matters. FASB delayed the plan after receiving opposition from several major companies, including Bank of America, JPMorgan Chase, and Citigroup.
The proposed FASB amendments would require companies to disclosure, among other things: the amount, or an an estimated amount, of a lawsuit or potential claim; likely insurance coverage; maximum potential loss; details of the origin of the dispute and current status; the likely timing of resolution; and the likely outcome.
Criticism of the original proposal included concerns that the proposed disclosure would require companies to release significant information about their internal deliberations regarding litigation matters, and put at risk information protected by the attorney-client privilege.
During its August 19, 2009 meeting, FASB discussed the effective date of any final guidance on the proposed changes, and decided not to rule out the possibility that it could be effective for fiscal years ending after December 15, 2009.
