FASB Releases Proposal on Disclosure of Certain Loss Contingencies

Jul 20th 2010
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Earlier today, FASB released its Exposure Draft (ED) of a proposed Accounting Standards Update: Contingencies (Topic 450): Disclosure of Certain Loss Contingencies. The 30-day comment period ends August 20, 2010.

Litigation Disclosures Controversial
The most controversial issue in the ED, which is being reissued after FASB considered the comments received on the original ED issued a few years ago, revolved around the enhanced disclosures on litigation contingencies.

Due to some critical feedback in the original comment letters on the prior ED, on litigation contingy disclosures in particular, FASB conducted additional outreach, including field tests and a public roundtable, before reissuing this ED.

Among the proposed changes noted in the ED (this is just one of the proposed changes):

The proposed amendments would retain the current qualitative disclosures and enhance them by requiring additional disclosures, for example, in the case of litigation contingencies, disclosure of the contentions of the parties and how
users can obtain additional information about the litigation.

Similarly, in addition to the quantitative disclosures required under current U.S. generally accepted accounting principles (GAAP), the amendments in this proposed Update would require disclosure of publicly available quantitative information (such as the claim amount for asserted litigation contingencies), other relevant nonprivileged information, and, in some cases, information about possible recoveries from insurance and other sources.

Furthermore, a public entity would be required to provide tabular reconciliations, by class, of recognized (accrued) loss contingencies that present the activity in the account during the reporting period.

Nonpublic Companies Receive Some Disclosure Relief
The ED is applicable to public and nonpublic companies, but proposes one point of disclosure relief for nonpublic companies, that nonpublic companies "would not be required to provide a tabular reconciliation of accrued loss contingencies."

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