The AICPA’s Financial Reporting Executive Committee (FinREC) told FASB in a comment letter issued Monday that it has concerns about auditors’ ability to corroborate information on loss contingencies with the client’s legal counsel until the AICPA and the American Bar Association can update a longstanding agreement that details information attorneys are required to share with auditors.
FinREC said that it supports FASB’s objectives in a Proposed Accounting Standards Update (ASU), Disclosures of Certain Loss Contingencies , to improve disclosures so investors can assess the likelihood, timing and amount of future cash flows associated with losses stemming from litigation.
However, the committee pointed out that a 1975 agreement between the AICPA and the American Bar Association, “Statement of Policy Regarding Lawyers’ Responses to Auditors’ Requests for Information,” doesn’t address some of the disclosure items in the proposed ASU. FinREC said it believes a revision to the agreement is needed before the FASB standard is finalized.
Other AICPA comments included:
- “If the requirement to disclose certain remote contingencies remains, additional application guidance is necessary. The determination of whether a contingency is frivolous or meets the threshold for disclosure is highly judgmental and will introduce significant complexity and risk into the process of preparing disclosures.”
- “Overall, we continue to believe that certain of the proposed disclosures could expose a company’s legal strategy and provide plaintiffs with information that could compromise the company in litigation or negotiation settlements, especially in the situations where the lack of contingent claims would prevent sufficient aggregation.”
FASB issued the Proposed ASU July 20 with an initial comment deadline of Aug. 20. Earlier this month, the board voted to extend the comment deadline to Sept. 20. “Many early respondents told the FASB that the comment deadline for this [ASU] was difficult to meet because of quarterly reporting deadlines, other important proposals in need of attention and the summer vacation plans of key personnel,” said FASB Chairman Robert Herz in a press release .
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