The Financial Accounting Standards Board, or FASB, proposed an amendment to FASB’s Statement No. 5, Accounting for Contingencies. The proposed amendment is in response to concerns from investors regarding companies’ disclosures related to loss contingencies in financial statements. The amendment, if adopted, would substantially expand companies’ obligations to disclose contingent loss liabilities, including litigation loss contingencies.
While the goal of increased transparency for investors is laudable, the new requirements, particularly as applied to reporting of litigation loss contingencies, will likely do more harm than good. Specifically, the proposed amendment may, among other things, require a company to place prematurely a value on all pending or threatened litigation and, in the process, potentially disclose key litigation strategy.
THE EXISTING STANDARD
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