8/7/2019 August 2010: Modification To Loss Contingencies Disclosures

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8/7/2019 August 2010: Modification To Loss Contingencies Disclosures

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Public Company Financial Executive Briefng 

www.SingerLewak.com | 877.754.4

MODIFICATION TO LOSS CONTINGENCIES DISCLOSURES

By Suzie Doran, CPA - Senior Manager, Assurance & Advisory Practice TUESDAY, AUGUST 3, 2010

EXECUTIVE SUMMARYOn July 20, 2010, the FASB issued an

exposure drat applicable to both public andnonpublic entities regarding new disclosuresabout certain loss contingencies. This is toaddress concerns that the current guidanceon contingencies under ASC 450 does notprovide adequate and timely inormationin assessing the likelihood, timing andmagnitude o uture cash outows associatedwith loss contingencies. The new guidancewould be eective or public entities withfscal years ending ater December 15,2010, and interim and annual periods insubsequent fscal years and or nonpublicentities or the frst annual period beginning

ater December 15, 2010, and or interimperiods o fscal years ater the frst annualperiod.

SUMMARY OF ACCOUNTINGBACKGROUND:This guidance would apply to all losscontingencies that are within the scopeo existing contingencies or businesscombinations standards with some scopeexceptions. The purpose would be toensure that disclosures include all publiclyavailable inormation, including qualitativeand quantitative, which allow users o the

fnancial statements to better understandthe nature and potential magnitude o aloss contingency. It also allows entitiesto aggregate disclosures on similarcontingencies such as by class or type as

long as the entities disclose the basis oraggregation.

 CHANGES:

Threshold: The threshold requirementswould remain the same, except certainremote contingencies may require disclosureunder this new standard to alert users aboutthe entity’s vulnerability to a potential severeimpact due to the contingency’s nature,timing or magnitude. Judgment will need tobe exercised in determining i the thresholdhas been met where the impact o “severe”(defned as signifcant fnancially disruptiveeect on normal operations o entity)may have more impact than the impact o 

“material.” This would include assessing thepotential eect on operations, expected legalcosts and the extent to which managementwill need to ocus eorts on resolvingcontingency.

Quantitative and Qualitative Disclosures:

Quantitative disclosures including publiclyavailable inormation would include theamount claimed by the plainti, damagesindicated by expert witnesses, and anestimate o loss or range o loss (orstatement explaining why an estimate cannotbe given). Remote contingencies meeting

disclosure requirements would not require anestimate o loss or range o loss. Disclosureson possible recoveries rom insurancearrangements may also need to be required.Financial statements should not be netted

or the amount o contingent liabilities andpotential recovery amounts.

For each income statement period includedin the fnancial statements, a tabularreconciliation o all loss contingencies byclass or each accrual account will needto be presented. The exposure dratspecifes descriptions o such activities witha description required or any signifcantactivities, which also need to be disclosed.Loss contingencies rom a businesscombination should be included in thisreconciliation, but presented separately i they are air valued. Nonpublic entities arenot required to present this reconciliation intheir ootnotes.

Qualitative disclosures are required on thenature, risks and timing o the contingencies.For example, legal contingencies would needto address the basis o the plainti claimand the expected deense o the entity.Settlement negotiations would not need tobe disclosed. Material contingencies wouldneed additional inormation such as the courtname, parties to the suit, date o the claimand a description o the underlying acts.I available, a timeline o expected stepstowards resolution should also be disclosed.____________________________________For more inormation, please reer to the

proposed ASU, “Disclosure o Certain Loss

Contingencies (Contingencies - Topic 450).”

Jim Pitrat:

JPitrat@singerlewak.com310.477.3924Practice Leader

Assurance & Advisory

Harmeet Singh:

HSingh@singerlewak.com408.294.3924Business Combinations Subject Matter Expert

Los Angeles, Silicon Valley

Gale Moore:

GMoore@singerlewak.com949.261.8600Business Combinations Subject Matter

Orange County, San Diego

FOR FURTHER INFORMATION, PLEASE CONTACT ONE OF THE FOLLOWING:

Suzie Doran:

SDoran@singerlewak.com310.477.3924Senior Manager

Assurance & Advisory