FASB's proposed Statement on Loss Contingency Disclosures, amending Statement 5 and 141R has faced many challenges. The proposal to amend FAS 5 and FAS 141R would make clearer the probability and timing in cash flow issues related to loss contingencies. However, some have pointed out that revisions would affect public companies adversely as they will be burdened with greater expenses, increased damages and settlements.
The Knowledge Congress is assembling a panel of key thought leaders and expert to help you understand the developments on Loss Contingency Disclosures. This two-hour webinar is a must see for everyone affected by these statements.
Course Level: Intermediate
Prerequisite: None
Method Of Presentation: Group-Based-Internet
Developer: The Knowledge Conference
Recommended CLE/CPE Hours: 1.75 - 2.0
(Please note, your State Bar or Accounting Board will make the final determination with respect
to continuing education credit. If you are applying for CLE credit in Texas you must register 20 days before the event date.)
Advance Preparation: Print and review course materials
Course Code: 083813
Lewis Ferguson
Partner
Thomas White
Partner
Michael L. Hermsen
Partner
Linda L. Griggs
Partner
Lewis Ferguson, Partner, Gibson, Dunn & Crutcher LLP
Historical and Procedural Background of the Proposed Reforms to FAS 5 and 141R.
1. The original proposals.
In June 2008 FASB issued an exposure draft that:
proposed extensive revisions to FAS 5, imposing new quantitative and qualitative disclosure requirements for contingencies that are more than remote; and
proposed a new FAS 141R requiring that contingent assets and liabilities acquired in business combinations be valued at fair value.
2. What led FASB to adopt the proposals?
A. Investor group complaints about the existing disclosure regime.
B. Several highly publicized example of large litigation settlements where there had been little or no prior disclosure.
C. A long term historical movement in accounting policy toward fair value accounting and increasing emphasis on balance sheet accuracy and relevance
D. Perceived pressure to align U.S. GAAP with IFRS which is fair value based.
3. Responses to the FASB proposal.
A. FASB received more than 235 comment letters, largely critical of the proposal.
B. Objections.
i. Preparers said valuation would be difficult, compliance costly and time consuming, information of dubious value, effective dates (end of 2008) unrealistic, and requirements could seriously prejudice defense of legal cases.
ii. Attorneys – proposal raises attorney/client privilege waiver issues, threatens the continued viability of the ABA/AICPA Treaty on Accountant/Attorney communications, may inhibit attorney/client communication, and will spur additional litigation if disclosures turn out to be wrong.
iii. Auditors – concerned with auditability of disclosures and valuations, and with the absence of specific auditing standard guidance for these matters.
4. FASB response to the comments.
A. Determined to reconsider the FAS 5 proposal and field test a staff alternative model.
B. Held a roundtable on March 6, 2009, to consider comments.
C. Determined to push back effective date of whatever standard is ultimately adopted to after end of 2009.
D. Issued staff guidance under FAS 141R which took effect for most companies in 2009 to take into account lawyers comments so that only loss contingencies that are capable of being valued have to be valued.
5. Certain things that have emerged from the comments and the roundtable discussion:
A. Accounting for contingencies illustrates the limitations of fair value accounting.
B. The 1976 ABA/AICPA treaty on lawyer/accountant communications may need to be revisited if disclosures of contingencies arising from legal claims are to be materially changed.
C. The goal of achieving convergence between U.S. GAAP and IFRS needs to take into account certain unique aspects of the U.S. legal and business environment.
Michael L. Hermsen, Partner, Mayer Brown International LLP
** Speaker Agenda to be added soon.. **
Thomas White, Partner, Wilmerhale
- Prospects for significant modification of disclosure standards under FAS 5 and FAS 141R
In light of substantial opposition, FASB decided in September to “redeliberate” its proposed new disclosure standard, including
by field testing an “alternative model.” FASB indicated that any new disclosure would not take effect until December 2009 at the earliest.
It appears from March 2009 roundtables that the FASB is unlikely to push for an expansive standard like that proposed in 2008.
However, it remains unclear whether the FASB will move forward with a more limited standard this year or, if so, what the contents of the
proposal will be.
- FAS 141R—In a FASB Staff Position approved in January 2009 and issued in April, the FASB modified the requirements of its new
standard on business combinations as they related to contingent assets and liabilities.
As adopted, FAS 141R, which took effect for most companies for fiscal years beginning January 1, 2009, required loss contingencies
assumed in a business combination to be recorded at fair value if it was more likely than not that a loss would be incurred. It also
required more fulsome disclosures about such contingences
Lawyers and others identified issues with this standard as applied to litigation contingencies, including issues regarding how to
determine the fair value of litigation and the potential prejudicial effect of the disclosures required under the standard
In response to these concerns, FASB adopted the FSP, under which the standard for recognition and disclosure of loss
contingencies assumed in a business combination reverted to the standard under former FAS 141. Under this standard,
(i) if the fair value of the contingency can be reasonably determined as of the acquisition date, it is recognized at
the acquisition date; and (ii) if the fair value of the contingency cannot be reasonably determined at the acquisition
date, then it will be recognized and/or disclosed in accordance with the standards of FAS 5 and FIN 14.
FASB made clear that this was a temporary change pending resolution of the larger disclosure project.
- Audit letter responses—the ongoing debate about FAS 5 has raised questions about the effectiveness and continued viability of the
so-called “treaty” between the American Bar Association and the AICPA that governs an attorney’s responsibilities in responding to
auditors’ requests for information about contingent claims.
If the FASB adopts expanded disclosure standards applicable to litigation contingencies, how will auditors audit those disclosures?
Will lawyers be required to provide more information that currently required to support the audit of expanded disclosures?
Or will the current form of the treaty requiring lawyers to state that they will advise clients about their disclosure responsibilities, be sufficient?
Linda L. Griggs, Partner, Morgan Lewis
** Speaker Agenda to be added soon.. **
- CFO's
- Controllers
- Directors of Corporate Development
- M&A Specialists and others involved in the development of their company's M&A strategy
- CPAs
- Senior Financial Professionals
- Business Valuation Specialists
This is a must attend event for anyone interested in understanding FAS 5 and FAS 141R.
- New guidance explained by the most qualified key leaders & experts
- Hear directly from key regulators & thought leaders
- Interact directly with panel during Q&A