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Legal Blogging (Commercial) 8/15/2008 10:27:49 AM EST Proposed Accounting Change on Reporting “Liabilities With Uncertainties” Generates Emphatic Comments from Companies, U.S. Chamber of Commerce Publisher, BVR Legal Business Valuation Resources, LLC Changing accounting standards requiring corporate reporting on “assets and liabilities with uncertainties” – such as lawsuits – clearly is a concern of many of the nation’s major corporations in general and their legal departments in particular.
In a December 4, 2007 letter to Financial Accounting Standards Board Chairman Robert H. Herz and International Accounting Standards Board Chairman Sir David Tweedy, 13 senior litigators from large U.S. corporations said that determining the timing and size of litigation-related losses is a moving target that poses a new and serious threat to companies. “As litigators, we are intimately familiar with the complexities that arise in the consideration of potential liabilities related to asserted and unasserted claims, the practical realities associated with recognition and measurement based on limited information, as well as the nature of the legal system, which adds to the general uncertainty of outcomes.”
The group drew on experience ranging from the highly publicized McDonald’s hot-coffee personal injury case to the complex Vioxx litigation against Merck.
"Too often," they wrote, "lawsuits are filed for publicity or to pressure companies . . . .” Recognizing these potential assets and liabilities at fair value when suit is filed would be both "flawed and misleading." "We do not believe that it is helpful to users of financial statements to require assets or liabilities to be recorded for what might . . . happen. [R]equiring companies to recognize an obligation could lead to abuse by adversaries seeking to take advantage of the financial impact a lawsuit could have on a company."
The 13 signers encouraged the FASB to engage "knowledgeable attorneys," offering their own time, before testing the concept to avoid "unintended economic consequences to corporations defending litigation." The letter was signed by legal leadership for Pfizer, GE, DuPont, Viacom, Boeing, McDonald’s, Kimberly-Clark, Time Warner, Johnson & Johnson, Wachovia, Tyco, Bank of America and Motorola.
More recently, on August 8, the U.S. Chamber of Commerce weighed in, saying the changes would “force companies to provide immaterial or confidential information, and boost the ability of plaintiff lawyers to win lawsuits against companies.” The proposed revisions would stimulate securities class actions, the Chamber says. “The total settlement value of securities class actions alone over the past decade is $51.8 billion. In addition, plaintiffs’ lawyers have earned nearly $17 billion in these cases in the last decade. FASB should not adopt new amendments that exacerbate an already troubling situation.” The Chamber’s letter is available here.
These issues, and more, are arising in the general context of the convergence of U.S. and international accounting standards. For more information about business valuation and related litigation, go to www.bvrlegal.com. Create an account or login to post comments.
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