A proposed new accounting rule has stirred fierce debate over whether companies should disclose estimates of the potential losses they face from lawsuits.

But responses to the controversial proposal from the Financial Accounting Standards Board have also raised a much broader question: Should FASB even write new accounting rules anymore?

Many of the companies submitting comments said no, arguing that the widely expected switch from U.S. Generally Accepted Accounting Principles to International Financial Reporting Standards means FASB should no longer unilaterally issue accounting rules.

“Help us transition to IFRS rather than creating new rules that may be obsolete in the near future,” wrote Douglas Shuma, chief accounting officer and controller of Telephone and Data Systems Inc., in a comment letter.

FASB’s proposal to amend FAS 5, Accounting for Contingencies, would require companies to disclose “specific quantitative and qualitative information” about loss contingencies — particularly from lawsuits — and to estimate their possible maximum loss. Further departing from current practice, companies would have to disclose even “remote” possibilities of loss if the cases were expected to be resolved within a year. While most of the 226 responses focused on the often-inflated claims of plaintiffs, the inherent unpredictability of litigation, and fears of giving plaintiffs’ attorneys too much information, some comment letters also pointed out that the proposed new rule diverges from the existing international equivalent, known as IAS 37.

“As convergence is likely inevitable and near term, we believe issuance of new guidance prior to agreement between the Board and the International Accounting Standards Board should be deferred,” wrote Douglas K. Bradford, controller of Ball Corp.

“[W]e believe that implementing the proposed statement prior to completely harmonizing international accounting standards…could have a material adverse effect on the U.S. capital markets,” wrote John L. Merino, principal accounting officer of FedEx. Added Thomas W. Sweet, chief accounting officer of Dell, “The current direction of the Board is to converge with IFRS and focus on principle-based standards. We do not believe this proposal is within the spirit of that goal.”

Of course, any transition from U.S. GAAP to IFRS is still years away — the Securities and Exchange Commission has yet to say for certain that it will happen at all, and the most commonly predicted year for a U.S. transition is 2013. “It is very important, it’s necessary, that we continue to maintain U.S. GAAP,” FASB board member George Batavick said in a webcast in June.

Still, FASB has made no secret of its plan eventually to hand its job over to the International Accounting Standards Board. In that same webcast, Batavick described how FASB has dramatically narrowed its agenda, paring down projects seen as essential to U.S.-international convergence so that some of the largest differences between U.S. GAAP and IFRS can be eliminated by 2011 at the latest. FASB has also downsized from seven members to five, even as IASB, at 14 members, plans to increase its membership to 16. It is perhaps no surprise, therefore, that companies are beginning to object to any controversial standards that FASB attempts to implement on its own.

At the same time, there’s certainly no guarantee that any of those companies would be happier with IASB’s thoughts on the matter. IASB is currently also considering changes to IAS 37, and the two boards tend to treat contingencies quite differently.

Take, for example, an equally controversial U.S. accounting rule, FIN 48, which requires that companies disclose the financial risk they may face if their taxes are disputed by the collecting government. Under U.S. GAAP, that risk must be disclosed only if the likelihood of it happening reaches a certain threshold. International accounting standards, by contrast, incorporate the risk, no matter how small, directly into the reported tax amounts. If IASB were to take a similar tack with contingencies stemming from lawsuits, companies could see those estimated amounts of contingencies appear within the financial statements themselves.

In a recent interview with CFO.com, IASB Chairman Sir David Tweedie said the initial reaction of the IASB staff was indeed that the mere existence of a legal claim did suggest some level of liability that should be recorded. However, he said that thinking had quickly changed, and it no longer holds sway in the board’s deliberations. “You may have to make some disclosure to say there’s some stupid claim against you, but you don’t provide for it if you genuinely feel it’s not [valid]. Now, we haven’t finalized that, but that was [IASB’s] last reaction to that.”

Still, on its face, even the current version of IAS 37 is stricter than the proposed changes to FAS 5. Both contain a “prejudicial exemption” that allows companies to forego disclosure if doing so would hurt the company’s prospects in court, or at the settlement table. The existing IAS 37 says that the prejudicial exemption can be invoked only under “extremely rare” circumstances, while FASB’s proposal says such exemptions should be “rare.” In its call for comments, FASB made a point of that distinction, and asked whether its constituents agreed with its decision to propose a looser standard. “No,” replied Citigroup deputy controller Robert Traficanti, “we believe the use of this exception will need to be common, not ‘rare.'”

At least two companies, however, reviewed current practice under IAS 37 and concluded that, despite the stricter language, there’s little difference in practice between the current international standard and FAS 5. “[W]e reviewed the disclosures of our competitor companies who utilize International Accounting Standards and found the disclosures to be similar or less than what we currently are disclosing under SFAS No. 5,” wrote Pfizer controller Loretta V. Cangialosi. “We found no prejudicial information of the type that the Board is suggesting be disclosed in either the current IAS 37 or [IASB’s] proposed amendments.”

Of course, Pfizer’s study of disclosures under IFRS also raises the question of whether the “principles-based” standards promulgated by IASB are simply interpreted more loosely, particularly when it comes to applying exemptions. JPMorgan Chase, which conducted its own review of its competitors that file using IFRS, noted that IAS 37 requires them to disclose an estimate of the financial effect of contingent liabilities.

“Based upon our review of the IAS 37 disclosures of a number of peer financial institutions, we do not see that this [required] disclosure is being made,” wrote JPMorgan Chase controller Louis Rauchenberger. “Since IAS 37 includes both a practicability and a prejudicial exemption (to be applied in “extremely rare cases”), it is possible that these companies are invoking one or both of these exemptions.” In the U.S., he added, “we do not expect that companies would be permitted to invoke these types of exemptions in such a broad manner.”