The Financial Accounting Standards Board has decided to delay the implementation of a new standard on loss contingencies after receiving comments from organizations concerned that it would lead to increased litigation.
FASB has extended the deadline for another year to Dec. 15, 2009, giving companies more time to disclose their loss contingencies for liabilities arising from business combinations. The American Bar Association has sent two letters to FASB warning of harmful consequences that could arise from the new standard (see ABA Wants FASB Loss Contingency Standard Delayed). It cautioned that the rules could threaten the attorney-client privilege and the work product doctrine for audits.
Other groups such as the U.S. Chamber of Commerce have warned that the new standard could lead to abusive lawsuits. The standard would require public companies, however, to disclose more information about pending or threatened litigation and provide more transparency in their estimates of the losses they could suffer from such lawsuits.
"The board decided on a plan for redeliberations of its exposure draft, Disclosure of Certain Loss Contingencies," said FASB in a summary of its September 24 board meeting. "The board directed the staff to prepare an alternative model that attempts to address the concerns that certain constituents raised about the exposure draft. This alternative model will be field tested along with the model in the exposure draft. The staff expects that field testing will take place during November and December 2008, and roundtable meetings will occur in either early January or March 2009. Board redeliberations are expected to begin in late March or April 2009. The board also decided that any final statement on this topic will be effective no sooner than for fiscal years ending after Dec. 15, 2009."
In other FASB news, the board issued a proposed staff position that would improve the criteria for reporting on a discontinued operation. FSP FAS 144-d establishes new disclosure requirements for all components of an entity that have been disposed of or are classified as held for sale. FASB is asking for comments on the proposed staff position by Jan. 23, 2009.
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