Wednesday, September 24, 2008

Lawyers Push Back on Accountants

Lawyers and companies objecting to more disclosure have derailed FASB by a year on the deadline for companies to provide new disclosures about their lawsuits and other contingent liabilities. The proposals are part of a controversial rewrite of FAS 5. Companies said they could not implement the new policy for disclosing potential lawsuit liabilities in time. The FASB is still digesting 235 comment letters from lawyers, auditors, and financial statement preparers who are concerned the newly shared information would reveal confidential data and give away the store in litigation. Companies would be required to disclose "specific quantitative and qualitative information" about potential lawsuit liabilities, including maximum amounts of claims, unfiled claims, and providing in tabular format lawsuits showing various stages of probability and potential outcomes.

Investors love it--and have encouraged even more disclosure. Lawyers hate it. Must be something good about it?

Read the FASB's proposal.
A few articles:
WSJ-Law File: Merck, Pfizer, Eli Lilly, J&J, Novartis and Wyeth, the companies told FASB that that estimating the costs of continuing litigation is “highly subjective, subject to huge swings as underlying assumptions change, and unlikely to provide financial statement users with meaningful or reliable information.” Others, including GE, DuPont, Boeing and McDonalds, have also objected to the rule.
WSJ editorial from last week on the proposed rule:
FASB's Lawyer Bonanza
The American Bar Association's take on it.

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