FASB Strikes Back
The business community is having fits over a FASB proposal. Here’s what FASB has to say in response:
I write in response to your editorial, "FASB's Lawyer Bonanza" (Review & Outlook, Aug. 7). The Financial Accounting Standards Board is not proposing that companies change their current accounting for the cost of ongoing litigation. Rather, our proposal would require additional disclosure in the footnotes to the financial statements. It is a proposal, not a "demand," and is subject to our normal extensive public due process.
Under the proposal, the amount that would be required to be disclosed is the claim amount, or, if there is no claim amount, the company's best estimate of its maximum exposure to loss. The Board attempted to insure the proposal would not require a company to "[show] its hand to plaintiffs' attorneys" as the editorial says. For example, the proposal allows companies to aggregate claim amounts, so that the plaintiffs attorneys would not be able to identify specific cases. We have also proposed an exemption for certain disclosure situations that would be clearly prejudicial to the company.