The Financial Accounting Standards Board's (FASB) recent decision to extend to Dec. 31, 2009, the proposed effective date of a new expanded standard for reporting loss contingencies may be a mixed blessing for general counsel and the defense bar.
The decision allows counsel to put the issue off until year's end instead of being obligated to comply with the original December 2008 implementation date. The board hasn't removed the most offensive parts of the proposed standard, but it did promise to "redeliberate" it, meaning that something akin to Chinese water torture has replaced the agony that likely would have accompanied certainty.
At the heart of the uproar is the key component of the proposal: lowering the threshold for reporting the potential loss from a lawsuit from the current "probable" to anything short of "remote." The proposal also would require detailed quantitative and qualitative information about the potential impact of loss contingencies, particularly litigation claims, on the company's financial positions.
When it issued the extension in September 2008, FASB announced it would develop an alternative model for loss disclosure aimed at addressing the concerns regarding privilege and prejudicial impact. Field testing of the original and the alternative proposals had been scheduled for November and December 2008. The field testing involves asking volunteer companies to prepare sample disclosures based on both models.