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A Look at FASB’s Latest Foray Into Contingencies

Colleen Cunningham | August 31, 2010

Earlier this July, the Financial Accounting Standards Board published an exposure draft for comment, Contingencies (Topic 450): Disclosures of Certain Loss Contingencies. (Most of us know this as Financial Accounting Standard No. 5.) This is the board’s second attempt at addressing contingencies; its previous attempt in 2008 received 241 comment letters—mostly unsupportive.

The board added this project to its agenda based on a perceived sentiment by investors and other users that current disclosures about loss contingencies—that is, losses a company might suffer, but the outcome is still uncertain—don’t provide adequate and timely information to assess the likelihood, timing, and magnitude of future cash outflows associated with the loss.

The funny thing is, less than 10 percent of the comments FASB received last time around came from actual users; more came from law firms, unhappy with possible disclosure of litigation costs....

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