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MODIFICATION TO LOSS
CONTINGENCIES DISCLOSURES
By Suzie Doran, CPA - Senior Manager, Assurance & Advisory Practice
EXECUTIVE SUMMARY
On July 20, 2010, the FASB issued an
exposure draft applicable to both public and
nonpublic entities regarding new disclosures
about certain loss contingencies. This is to
address concerns that the current guidance
on contingencies under ASC 450 does not
provide adequate and timely information in
assessing the likelihood, timing and
magnitude of future cash outflows associated
with loss contingencies. The new guidance
would be effective for public entities with
fiscal years ending after December 15, 2010,
and interim and annual periods in subsequent
fiscal years and for nonpublic entities for the
first annual period beginning after December
15, 2010, and for interim periods of fiscal
years after the first annual period.
SUMMARY OF ACCOUNTING
BACKGROUND:
This guidance would apply to all loss contin-
gencies that are within the scope of existing
contingencies or business combinations
standards with some scope exceptions. The
purpose would be to ensure that disclosures
include all publicly available information,
including qualitative and quantitative, which
allow users of the financial statements to
better understand the nature and potential
magnitude of a loss contingency. It also
allows entities to aggregate disclosures on
similar contingencies such as by class or
FOR FURTHER INFORMATION, PLEASE CONTACT ONE OF THE FOLLOWING:
Suzie Doran:   Jim Pitrat:  Harmeet Singh:  Gale Moore:
SDoran@singerlewak.com  JPitrat@singerlewak.com  HSingh@singerlewak.com  GMoore@singerlewak.com
310.477.3924 310.477.3924
Senior Manager Practice Leader
Assurance & Advisory Assurance & Advisory
www.SingerLewak.com | 877.754.4557
type as long as the entities disclose the basis
for aggregation.
CHANGES:
Threshold: The threshold requirements would
remain the same, except certain remote
contingencies may require disclosure under
this new standard to alert users about the
entity’s vulnerability to a potential severe
impact due to the contingency’s nature, timing
or magnitude. Judgment will need to be
exercised in determining if the threshold has
been met where the impact of “severe”
(defined as significant financially disruptive
effect on normal operations of entity) may have
more impact than the impact of “material.”
This would include assessing the potential
effect on operations, expected legal costs and
the extent to which management will need to
focus efforts on resolving contingency.
Quantitative and Qualitative Disclosures:
Quantitative disclosures including publicly
available information would include the
amount claimed by the plaintiff, damages
indicated by expert witnesses, and an
estimate of loss or range of loss (or statement
explaining why an estimate cannot be given).
Remote contingencies meeting disclosure
requirements would not require an estimate of
loss or range of loss. Disclosures on possible
recoveries from insurance arrangements may
also need to be required. Financial
408.294.3924
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ASSURANCE & ADVISORY
TUESDAY, AUGUST 3, 2010
statements should not be netted for the
amount of contingent liabilities and potential
recovery amounts.
For each income statement period included in
the financial statements, a tabular reconcilia-
tion of all loss contingencies by class for each
accrual account will need to be presented.
The exposure draft specifies descriptions of
such activities with a description required for
any significant activities, which also need to
be disclosed. Loss contingencies from a
business combination should be included in
this reconciliation, but presented separately if
they are fair valued. Nonpublic entities are
not required to present this reconciliation in
their footnotes.
Qualitative disclosures are required on the
nature, risks and timing of the contingencies.
For example, legal contingencies would need
to address the basis of the plaintiff claim and
the expected defense of the entity.
Settlement negotiations would not need to be
disclosed. Material contingencies would need
additional information such as the court
name, parties to the suit, date of the claim
and a description of the underlying facts. If
available, a timeline of expected steps
towards resolution should also be disclosed.
For more information, please refer to the proposed
ASU, “Disclosure of Certain Loss Contingencies
(Contingencies - Topic 450).”
949.261.8600