On July 9, 2012, the Financial Accounting Standards Board (FASB) finally decided to shelve its efforts to revise the disclosure requirements for loss contingencies under FASB Accounting Standards Codification™ Topic 450. Since 2007, the FASB had been considering expanding and enhancing the disclosures required with respect to loss contingencies to address concerns of investors and other users of financial statements that the existing disclosures do not provide enough information, soon enough, to help them evaluate the possible outcome of a loss contingency, such as a lawsuit or liability for an environmental clean-up. The proposed changes would have lowered the threshold for reporting loss contingencies to include certain remote contingencies and would have required additional qualitative and quantitative disclosures.
There was overwhelming opposition to the proposed changes. Much of the opposition related to concerns that the additional financial statement disclosure would prejudice reporting company’s efforts to defend against lawsuits and other claims. In addition, some users of financial statements commented that changes were unnecessary because the real issue is not the absence of a disclosure requirement, but rather the lack of compliance with the existing disclosure requirements.
While FASB may have decided to shelve its current efforts to revise the disclosure requirements for certain loss contingencies, reporting companies should nonetheless remain vigilant about their reporting of loss contingencies, especially since the SEC continues to comment on loss contingency disclosures.