FASB Proposes Significant Expansion of Disclosure Requirements for Loss Contingencies

The FASB recently published for comment proposed amendments to the accounting standards for disclosure of loss contingencies. If adopted as proposed, the amendments would require companies to disclose a broader range of contingencies than currently required, and would significantly expand the nature and scope of quantitative and qualitative disclosure required for disclosed contingencies.

Taken together, the proposed amendments would greatly expand the information available about a company’s loss contingencies. Whether the predictions and judgments they require can be made with sufficient accuracy and reliability to be probative in fact is unclear. What is clear, however, is that providing the additional information would come at great cost: the very information the FASB believes would be useful to investors undoubtedly will be far more useful to the company’s adversaries in the litigation process. Expanded disclosure of a company’s expectations regarding the timing, likelihood and amount of potential charges relating to contingencies also could expose the company to further litigation risk if the amount or timing of actual charges proves to be materially different than expected.

The attached alert memo discusses the proposed standard and its potential impact.