FASB Changes Focus on Loss Contingencies; Together with SEC, PCAOB Staff, Will Focus on Disclosures Under Current Standards

For those of you who did not get to see our updated blog post entitled, "Bean There, Done That" in which we added a synopsis of FASB's November 10 board meeting, we provide that info below, to highlight a significant decision by FASB announced on November 10: to focus - together with staff of the SEC and PCAOB - on disclosures of loss contingencies (including litigation) provided based on current accounting standards, before finalizing any changes to those standards.

As background, significant changes to the existing standard (FAS 5) had been proposed by FASB, but met with a great deal of criticism from the legal community and many in the business community, who noted concerns about potentially weakening attorney-client privilege, and potentially weakening a defendant company's position in a lawsuit - even arbitrary lawsuits, through proposed disclosures in earlier Exposure Drafts.

Concerns had also been voiced on earlier proposals about practical issues surrounding some of the proposed quantitative and qualitative disclosures, and whether some of the proposals to provide even ostensibly 'factual' information would result in 'too much information' to the extent that it would make a discussion of contingencies (particularly in relation to lawsuits) less understandable to investors, rather than more understandable. (As background, see, e.g. our post summarizing a FASB roundtable held in 2009: Disclosure is Not a Place to Try a Lawsuit, ACC Tells FASB.)

Our summary of action taken at FASB's November 10 meeting on this issue appears below.

Disclosure of Certain Loss Contingencies (including Litigation)

FASB staff summarized comment letters received on FASB's proposal, and identified issues for redeliberation.

Significantly, signalling a holistic look at this issue, FASB's summary of their November 10 meetingadds:

 "The board directed the staff to work with the staffs of the SEC and PCAOB to understand their efforts in addressing investor concerns about the disclosure of certain loss contingency through increased focus on compliance with existing rules. The Board also directed the staff to review filings for the 2010 calendar year-end reporting cycle to determine if those efforts have resulted in improved disclosures about loss contingences."

On this note, see also our earlier post regarding the SEC's recent Dear CFO letter, which addresses contingency disclosures among other things.

Disclosures About an Employer's Participation in a Multiemployer Plan

FASB agreed not to make this proposed standard effective this year. Redeliberations will continue.

Investment Properties

The Board instructed the staff to develop a scope proposal that would include entities whose primary activities are investing in real estate and who have some characteristics similar to investment companies, for example, the entity has unrelated investors, and the entity intends to provide investors with returns from both rental income and capital appreciation. Additionally, the Board agreed that lessors of properties that are outside the scope of the investment properties guidance would be affected by the FASB Exposure Draft, Leases (Topic 840), and should therefore focus their attention and comments to the Board on that proposed guidance.

Going Concern

(No, not that Going Concern, this Going Concern.) Updated: FASB discussed a summary of key issues raised by external reviewers on a preliminary staff draft of a proposed Accounting Standards Update for this project and decided to deliberate these issues at a future board meeting. Additionally, the Board directed the staff to obtain SEC and PCAOB input on the revised draft standard.

FASB, IASB Meet Jointly (by videoconference) on Financial Instruments

FASB also held a series of joint board meetings with the IASB over the past week, via videoconference, focusing on the financial instruments project. Results of the joint board meetings are being posted here

 

 

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FEI Financial Reporting Blog provides highlights from SEC, PCAOB, FASB, IASB, and other regulatory news, including reporting under Sarbanes-Oxley Sect 404. It is written by Edith Orenstein, Director of Technical Policy Analysis at FEI

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