Corp. Counsel Alarmed By Proposed Accounting Changes
The Financial Accounting Standards Board probably expected some flak when it announced in June its intent to broaden required disclosures on the potential costs of corporate litigation.
What the board got, however, was a fusillade.
Unprecedented backlash has been growing since the FASB, the private nonprofit group that develops generally accepted accounting principles, released an “exposure draft” with suggested changes to regulations that dictate how much information publicly traded companies must provide in their periodic financial statements.
Under current rules, a company must disclose an estimate for the potential cost of a pending lawsuit when it appears likely the matter will result in a loss and that loss can be reasonably predicted. The new rules would require a company to provide its best forecast of the maximum possible exposure to loss from litigation or the impact of mergers.
Attorneys—mainly corporate counsel—have voiced numerous objections to the proposed changes. Broadly put, their reactions stem from the fact that lawsuits, by their very nature, are evolutionary and subject to change. This is because the process of discovery and a host of other unpredictable forces—including judges, juries and a generally adversarial U.S. legal system—bear on litigation as it moves from one stage to the next.
Continue reading the full story online in the January issue.
