Wednesday, August 20, 2008

A controversial revised of Accounting for Contingencies on this August 2008 published several articles regarding on controversial proposal proposed by FASB that require more company disclosure about potential lawsuit liabilities.

In its article titled "Bar Fight : Accounting for Lawsuits", wrote that :

The proposed new standard would overhaul FAS 5, Accounting for Contingencies. Under the proposed rule, companies would have to disclose "specific quantitative and qualitative information" about loss contingencies. The new rule will also affect the contingent losses companies must disclose under FAS 141, which applies in the wake of mergers and acquisitions.

Under current accounting rules, companies are only required to take a financial charge for a contingent loss if it appears probable that the loss has occurred and its amount can be reasonably estimated. If those conditions are not met, companies must still disclose the loss contingency, but only if there is a reasonable possibility that a loss has occurred.

Under the new rule, companies would have to disclose all loss contingencies unless their likelihood is remote. And companies also would be required to disclose any contingency - no matter how remote - that is expected to be resolved within a year, and could have a severe impact on the company's financial position, financial results, or cash flow.  That's a change that would put substantially greater detail about potential lawsuit liabilities into the footnotes of corporate financial statements.

That is the part of the proposal that has many companies upset.

Here is the link to articles published by regarding on above matter.

(1) Bar Fight : Accounting for Lawsuits (; (2) Who Should Write the Rules ? (; (3) Contingent Liabilities Draft Ignities Ire (; (4) Contingent Liabilities Draft Stirs It Up

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