Breaking News: FASB Delays Issuance of a Standard on Disclosure of Certain Loss Contingencies

Source: PricewaterhouseCoopers Author name: PwC assurance services
Published: 09/24/2008

Summary:Today, the Financial Accounting Standards Board announced its intentions to re-deliberate the proposal that would require new disclosures of certain loss contingencies intended to replace the loss contingency disclosures required by FASB Statement No. 5, Accounting for Contingencies (FAS 5), and FASB Statement No. 141(R), Business Combinations (FAS 141(R)). These actions will delay the issuance of any new standard until sometime in 2009. The FASB's decision is an acknowledgement of the concerns expressed about its proposal and the time it will take to further study and deliberate the issues raised by constituents during the comment period.

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On September 24, the Financial Accounting Standards Board announced its intentions to re-deliberate the proposal that would require new disclosures of certain loss contingencies intended to replace the loss contingency disclosures required by FASB Statement No. 5, Accounting for Contingencies (FAS 5), and FASB Statement No. 141(R), Business Combinations (FAS 141(R)). These actions will delay the issuance of any new standard until sometime in 2009.The FASB's decision is an acknowledgement of the concerns expressed about its proposal and the time it will take to further study and deliberate the issues raised by constituents during the comment period.

The FASB plans to:

• Review the comment letters received during the comment period, which ended August 8, 2008. The Board received 239 letters to date and the vast majority of the letters were not supportive of the overall proposal.
• Perform field testing, that will test the implementation of two models; one based on the proposed disclosures in the exposure draft and another to be created based on the Board's review of the comment letters. While field testing has not yet begun, the Board intends to complete it by the end of 2008. Companies that are interested in participating in the field test should contact the FASB.
• Hold at least one roundtable meeting with representatives from various constituencies including preparers, users, lawyers, auditors, and regulators to discuss the results of the field test and the concerns identified in the comment letter process. The Board expects to hold the roundtable meetings in the first quarter of 2009.

After completing all of the above, the Board is expected to re-deliberate the issues in the second quarter of 2009. If the Board decides to issue a final standard, it agreed that the effective date of the standard would be no earlier than for fiscal years ending after December 15, 2009.
Companies are encouraged to monitor the developments on this project. Here is a link to the FASB's project summary, which includes the exposure draft and other information on the project. As a reminder, given the increased focus on these disclosures, management should ensure that the company's disclosures for loss contingencies meet the requirements of FAS 5 and SOP 94-6, Disclosure of Certain Significant Risks and Uncertainties. For example, under SOP 94-6 and FAS 5 companies should provide an "early warning" disclosure when it is at least reasonably possible (i.e., more than remote but less than likely) that an estimate of a loss contingency will change in the near term or that a loss or an additional loss may have been incurred, if material to the financial statements.

QuestionsPricewaterhouseCoopers clients that have questions about this Breaking News should contact their engagement partners. Engagement teams that have questions regarding specific client situations should contact the National Professional Services Group (973-236-7800).

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