The Financial Accounting Standards Board took up the controversial question of disclosure requirements for loss contingencies at its latest meeting and decided that companies need to make more disclosures.

FASB 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 also decided that 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, said FASB. In addition, disclosures should provide a summary of information that is publicly available about a case and indicate where users can obtain more information.

FASB 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.

In addition, the board decided that certain remote loss contingencies should be disclosed, and it directed staff members to develop possible approaches for discussion at a future meeting. FASB also decided to maintain the existing threshold requirements for unasserted claims and assessments, and it agreed to enhance the existing interpretive guidance about the threshold.

In addition, FASB 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 non-privileged 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, however, did decide 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.

In addition, FASB 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 Dec. 15, 2009.

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