Of the types of information required to be disclosed by public companies, information about “contingencies” is often one of the more sensitive disclosures for the company and may be closely scrutinized by analysts and investors. Disclosure of pending lawsuits and government investigations also has the potential to impact an underlying proceeding, since adversaries may attempt to discern the company’s outlook and strategy from the disclosure. Concern over a company’s contingencies disclosure continues to grow given the nature of high stakes litigation, aggressive government enforcement initiatives, and the large loss contingency charges recorded during the financial crisis.
The Securities and Exchange Commission (“SEC”) and the Financial Accounting Standards Board (“FASB”) have focused on how public companies disclose their loss contingencies and they have explored the possibility of requiring additional contingencies disclosure. In this edition of the Public Company Advisor, we provide a helpful guide or “roadmap” to the basic tenets of a company’s obligation to accrue for and disclose loss contingencies. This roadmap focuses on the requirements under the accounting literature that often drive the most sensitive disclosures - - FASB Accounting Standards Codification Topic 450 (“ASC 450”) (formerly Financial Accounting Standards No. 5).
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