FASB to Scale Back FAS 5 Proposal: Organizational Respect For Privilege Expected To Be Reinstated
ACC applauds the Financial Accounting Standards Board (FASB) for moving away from its proposed changes to FAS 5 contingent liability reporting requirements and adopting a more reasonable approach in response to strong opposition from ACC and other bar and business groups.
The Board reportedly plans to issue a final rule that will incorporate the following*:
• Disclosures about litigation contingencies should focus on the parties, rather than on predictions about outcomes.
→ This suggests that clients and their lawyers reporting on contingent liabilities would not suffer negative consequences from having predicted unpredictable outcomes.
• Disclosures about a contingency should be more robust as the likelihood and magnitude of loss increase, and as the contingency progresses toward resolution.
→ A return to a focus on reporting what is better known and understood as a matter develops is welcomed; the draft’s initial requirement of reporting before any facts were known would have made the disclosures unreliable and left clients exposed when ’guestimates’ inevitably became public and companies were accused of misstating their financial liabilities.
• Disclosures should summarize publicly available information about a case and indicate where users can obtain more information.
→ A focus on reporting what is publicly known is crucial to protecting privilege – the initial drafts inferred that reporting should include items that would waive corporate attorney-client privileges and lawyer work product protections.
• Disclosures about a contingency should not affect the outcome of the contingency – the disclosure is intended to report on which is happening related to the contingency.
→ Similarly, this result reinforces the previous four, but the focus should be on the contingent liability and not on divulging corporate strategy, privileged legal risk assessments, and lawyer work product.
Further, the revised rule would reinstate organizational respect for privilege and firmly re-assert existing and recognized protocols between lawyers and clients and auditors, based on such longstanding practices as detailed in the AICPA’s “Treaty.”
ACC members and many others expressed strong concerns and opposition to this proposed revision as fundamentally bad policy. We applaud the reported change in direction by FASB
FAS 5 proposals, and comments submitted by ACC and co-signed by 175 general counsel.
* (SOURCE: PWC DataLine briefing, October 9, 2009)
