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It's Your Loss. (Maybe.) Now Explain It.

Companies will have to disclose more detail about potential future losses — notably from lawsuits — under a proposed new accounting rule.

Tim Reason, | US
June 9, 2008

IASB and FASB On Contingencies

IASB properly accounts for contingencies as FASB had done prior to the proposed rule change. The FASB proposed disclosure ignores the reliable measure principle. If that is absent, the number means nothing. It is like following a recipe that has numbers but no units of measure. This also could lead to the self-fulfilling prophecy: more legal disclosures, especially if not reliably measured, may provide investors with a scare. Doing so may hinder a company ability to raise capital. In turn, capital investments and innovation may decline. That could lead to a going concern problem which would require a going concern note. Thus, excessive contingency disclosure is akin to opening Pandoraŭs Box.

Posted by David Newman | June 09, 2008 06:02 pm

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