Corporate Governance

FASB Proposes Amendments to SFAS No. 5, Accounting for Contingencies

By Harvard Law School Program on Corporate Governance

(Editor’s note: We have received other memoranda on the proposed amendments to Statement of Financial Accounting Standards No. 5 by Eric Roth of Wachtell, Lipton, Rosen & Katz and our guest contributor Holly Gregory of Weil, Gotshal & Manges LLP. The memoranda are available here and here.)

My colleagues and I have prepared a memorandum summarizing the serious concerns raised for public companies by proposed amendments to the Financial Accounting Standards Board’s Statement of Financial Accounting Standards Number 5, dealing with loss contingencies. Boards of directors, particularly audit committee members, and those who advise boards should become familiar with the proposed amendments and the potential consequences, which include earlier, more detailed public disclosure and, including liability estimates, for litigation and other claims, even in cases where the company expects to prevail or does not believe there will be a material cost to settle the matter. Comments in writing are due on this proposed amendment by August 8, 2008 and FASB will thereafter host an open forum on the issue at which those who have submitted comments may testify. We welcome reactions to the concerns we have expressed.

The memorandum is available here.

Full post as published by The Harvard Law School Corporate Governance Blog on July 03, 2008 (boomark / email).