The American Bar Association is urging the Financial Accounting Standards Board to delay implementing a proposed standard for loss contingencies arising from business combinations, warning of harmful, unintended consequences.

ABA president H. Thomas Wells Jr., wrote a letter to FASB Chairman Robert Herz, referring to earlier comments sent by the ABA's former president and other organizations criticizing the measure (see FASB Litigation Proposals Under Fire).

The proposed amendment to FASB Statements 5 and 141(R), which is scheduled to go into effect for fiscal years beginning after Dec. 15, 2008, will require recognition and disclosure of loss contingencies assumed or acquired in connection with a business combination that are more likely than not to be incurred.

Companies would need to provide the amounts recognized at the acquisition date or an explanation of why no amount was recognized, the nature of recognized and unrecognized contingencies, and an estimate of the range of outcomes for the contingencies or, if a range cannot be estimated, the reasons it cannot be estimated. It also will require subsequent disclosure of any changes in the recognized amounts of liabilities arising from these loss contingencies and any changes in the range of outcomes and the reasons for those changes.

The ABA believes the measure could lead to erosion of the attorney-client privilege and the work product doctrine during the audit process. "If adopted, the proposed amendments will have very profound and far-reaching effects on the business community, as well as the legal and accounting professions," wrote Wells.

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