Recent efforts by the Financial Accounting Standards Board to force lawyers to disclose more information about client matters have slowed in the wake of loud opposition from attorneys and others. The dispute arose over the FASB’s proposed new rules on the descriptions of loss contingencies such as lawsuits in audited financial statements. Implementation now has been postponed while the FASB conducts what it calls “redeliberations.”
But the contentious debate over what constitutes needed “transparency” in financial statements — and, in the loss-contingency case, to what extent attorney-client privilege should be sacrificed to more detailed financial reports — exposes a fundamental problem about America’s most influential, unsupervised regulator. The FASB’s one-size-fits-all prescriptive rules approach to financial reporting does not work in the modern world. Removing discretion from financial-statement writers does not make the statements more credible or useful.
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