FASB delays proposal on disclosure of certain loss contingencies

Creates new FIN 48 project regarding nonpublic companies

FASB will delay the effective date of a proposal regarding disclosures of certain loss contingencies for one year. The proposed standard is intended to amend the loss contingency disclosures required by FASB Statement No. 5, Accounting for Contingencies and FASB Statement No. 141(R), Business Combinations.

FASB agreed to extend the effective date of the final amended standard to be effective no sooner than fiscal years ending after Dec. 15, 2009.
Several organizations, including the OSCPA and the AICPA, have criticized the proposed standard on accounting for loss contingencies, saying it could lead to possible abuses, including a flurry of spurious lawsuits. The proposed amendments to FASB Statements 5 and 141(R) would increase the amount of information that publicly traded companies are required to disclose about pending or threatened litigation.

During the comment period, FASB received over 200 comment letters, with the vast majority expressing serious concerns. In its letter of comment, The Ohio Society of CPAs A&A Committee said, “The proposed draft seeks to expand disclosures not meaningful to financial statement users with detail and estimate information for contingencies not likely to significantly impact organizations. We believe contingency disclosure criteria existing in the current Standard No. 5 are adequate.”

The AICPA’s letter of comment shared their primary areas of concern with the proposed amendment saying, “Our primary concerns are that (1) companies would be forced to disclose numbers that are inherently unreliable and (2) certain of the required disclosures might compromise a company's litigation strategy by providing information to an adversary or causing a breach of attorney-client privilege.”

FASB Chair Robert Herz also announced the addition of a project to consider a potential deferral or modification to FIN 48, Accounting for Uncertainty in Income Taxes, in regards to nonpublic companies. 

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