Earlier this month I attended Financial Executives International’s annual conference on current reporting issues. FEI’s conference is always good for a sense of the latest, most pressing headaches that financial reporting departments are worried about—but this time around, the latest and most pressing headache is actually one that has been irritating corporate accounting and legal departments for more than two years: loss contingencies.
First, a refresher. Loss contingencies are amounts a company must disclose for possible losses the business might incur, where nobody knows precisely how much those costs might be or when uncertain outcomes might clarify themselves; essentially, you disclose how much money you are salting away for some unpleasant scenario that might strike the business later, such as environmental cleanup of a polluted site or a high-stakes lawsuit that goes the wrong way. Or, alternatively, you disclose that any possible loss is immaterial, or that you can’t make an intelligent estimate of the loss.
