FAS 5 and Litigation Disclosure
While dodging bullets on settlement negotiations, privileged information on potential recoveries and nondisclosed insurance coverages, the Corporate Bar will be dealing with disclosures on timing of legal recoveries, possibly including “nonprivileged quantitative information” about a potential loss.
The Association of Corporate Counsel (ACC) prioritized working with the Financial Accounting Standards Board (FASB) to avoid disclosing settlement and litigation budgets as part of protecting work product and legal strategy. The concern was that disclosure would include litigation budgets, including the total potential cost of ediscovery and trial costs, and potential settlement amounts and likelihood of settlement.
While the outcome is not as draconian as it could have been, there are significant reporting obligations and open questions for future meetings.
The Guidance on disclosure of contingencies is not yet complete and continues through next year.
The board will begin discussing “remote loss contingencies.” One wonders if this discussion will include, overlap and inform the legal communities’ discussions of when a legal hold should issue when litigation is not pending.
The relevant excerpt from the FASB report is below:
Disclosure of certain loss contingencies. The Board began redeliberations of disclosure requirements for certain loss contingencies. The Board decided to initially focus its deliberations on loss contingencies associated with litigation and to consider other types of loss contingencies at a future meeting.
The Board decided on the following disclosure objective:
An entity shall disclose qualitative and quantitative information about the loss contingency to enable a financial statement user to understand the nature of the contingency and its potential timing and magnitude.
The Board decided on the following broad principles for disclosures about loss contingencies:
- Disclosures about litigation contingencies should focus on the contentions of the parties, rather than predictions about the future outcome.
- Disclosures about a contingency should be more robust as the likelihood and magnitude of loss increase and as the contingency progresses toward resolution.
- Disclosures should provide a summary of information that is publicly available about a case and indicate where users can obtain more information.
The Board decided to maintain the existing requirement to disclose asserted claims and assessments whose likelihood of loss is at least reasonably possible and to clarify that at least reasonably possible and more than remote have the same meaning. The Board also decided that certain remote loss contingencies should be disclosed, and it directed the staff to develop possible approaches for discussion at a future meeting. The Board also decided to maintain existing threshold requirements for unasserted claims and assessments and agreed to enhance the existing interpretive guidance about the threshold.
The Board decided that entities should not consider the possibility of recoveries from insurance or indemnification arrangements when assessing whether a contingency should be disclosed.
Regarding quantitative disclosure requirements, the Board directed the staff to develop an approach that would focus on disclosure of nonprivileged quantitative information that would be relevant to making an estimate of the potential loss, for consideration by the Board at a future meeting.
The Board decided not to require entities to disclose information about settlement negotiations.
The Board decided to require disclosure about possible recoveries from insurance and other sources if and to the extent that the information has been provided to the plaintiff in discovery.
The Board discussed the effective date of any final guidance on this project and decided not to rule out the possibility that it could be effective for fiscal years ending after December 15, 2009.
http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB/FASBContent_C/ActionAlertPage&cid=1176156416898
Filed under Governance, Risk & Compliance, Sound Evidence, Technology Counsel, Uncategorized.