Handling of Litigation Contingency Disclosure Facing Greater SEC Scrutiny

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Ok I admit it - the blog title is directly lifted from the excellent Journal of Accountancy article on the topic, which I recommend reading.

This is a topic that is heating up for SEC issuers.  It's that age old issue of how much to disclose on contingencies without showing all your cards to the other side. FASB has also an exposure draft on the issue, which I don't recall being greated with great happiness.

The most interesting quote to me related to the "treaty" between the AICPA and the American Bar Association on how attorneys would respond to legal letters: 

The ("SEC") chief accountant seems to be making the point that companies need to do what it takes to see that those things are properly evaluated and properly reported in the financial statements. His main point seems to be that the treaty is not part of generally accepted accounting principles, and it’s generally accepted accounting principles that have the last word. And if a company does not fairly present its financial statements because the treaty has impeded dialogue with the auditor—that is not something the SEC will look favorably on (emphasis added).

SEC issuers, especially those with ongoing litigation, would be wise to follow this issue, as changes are coming.


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