Proposed ASU on Disclosure of Certain Loss Contingencies

The FASB issued Proposed Accounting Standards Update Contingencies (Topic 450) Disclosure of Certain Loss Contingencies on July 20, 2010. At that time the comment period was to have ended August 20, 2010. The FASB has extended the comment period to Sept. 20, 2010 as a result of feedback from early respondents. For public entities, the new guidance would be effective for fiscal years ending after December 15, 2010, and interim and annual periods in subsequent fiscal years. For nonpublic entities, the new guidance would be effective for the first annual period beginning after December 15, 2010, and for interim periods of fiscal years after the first annual period.

The FASB issued this proposed Update because investors and other users of financial reporting have expressed concerns that disclosures about loss contingencies under the existing guidance in Topic 450 do not provide adequate and timely information to assist them in assessing the likelihood, timing, and magnitude of future cash outflows associated with loss contingencies.

The amendments in this proposed Update would apply to all entities, both public and nonpublic, except that nonpublic entities would not be required to provide a tabular reconciliation of accrued loss contingencies.

Objective
This proposed Update would establish the following disclosure objective: An entity shall disclose qualitative and quantitative information about loss contingencies to enable financial statement users to understand (a) the nature of the loss contingencies (b) their potential magnitude and (c) their potential timing (if known).

To achieve this objective, an entity would consider the following principles in determining disclosures that are appropriate for its individual facts and circumstances for loss contingencies that meet the disclosure threshold:

a. During early stages of a loss contingency’s life cycle, an entity would disclose information that is available to enable users to understand the loss contingency’s nature, potential magnitude, and potential timing (if known). In early stages information may be limited and so disclosure may be limited. In subsequent reporting periods, disclosure would be more extensive as more information becomes available.
b. An entity may aggregate disclosures about similar contingencies (for example, by class or type) so that the disclosures are understandable and not too detailed.

Disclosures
The amendments in this proposed Update would require disclosure of certain remote loss contingencies. This expands the population of loss contingencies that are required to be disclosed to achieve more timely disclosure of remote loss contingencies with a potentially severe impact.

When assessing the materiality of loss contingencies to determine whether disclosure is required, an entity would not consider the possibility of recoveries from insurance or other indemnification arrangements.

The proposed amendments would retain the current qualitative disclosures. In addition to the quantitative disclosures required under GAAP, the amendments would require disclosure of publicly available quantitative information, other relevant nonprivileged information, and, in some cases, information about possible recoveries from insurance and other sources.

A public entity would be required to provide tabular reconciliations, by class, of recognized (accrued) loss contingencies that present the activity in the account during the reporting period.

Proposed ASUs are available on the FASB website, http://www.fasb.org/.

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Blue Ribbon Panel Asking for Feedback

As you are no doubt aware, the Blue Ribbon Panel, a joint effort by the AICPA; the Financial Accounting Foundation (FAF) FASB’s parent organization; and the National Association of State Boards of Accountancy (NASB) has been discussing alternate models for private company financial reporting. The panel considered seven alternative models at its July meeting. They eliminated models that were based on IFRS and a model that effectively would have maintained the status quo. The three models that remain would result in differences in GAAP for private companies, where warranted, compared with GAAP for public companies. The three are:

• U.S. GAAP with Exclusions for Private Companies—with enhancements
• U.S. GAAP—Baseline GAAP with Public Company Add-Ons
• Separate, Stand-Alone GAAP Based on Current U.S. GAAP

Another recommendation to come out of the panel’s discussion is consideration of a separate board for private companies under the FAF. FASB would still set public company standards and the new board would be made up of individuals that are focused on private companies. This “private companies board” would decide whether, what and how GAAP should apply to private companies starting with the FASB standards.

Now the panel is asking for your feedback. They are asking users of private company financial statements, preparers and practitioners to respond to a series of questions. The questions will help the panel in (1) discussing how accounting standards can best meet the needs of U.S. users of private company financial statements and (2) making recommendations. The questions are on fasb.org and must be submitted by Sept. 15. A summary of the responses will be distributed to panel members and participating observers. The summary will be included as part of the observer notes (a publicly available meeting handout) for the panel’s next meeting, Oct. 8 at the AICPA’s New York City office.

Take advantage of this opportunity to tell the panel what you think about private company accounting standards. And while you’re at it, tell us what you think about a separate accounting standards board for private companies by leaving a comment.

New Publication
Our newest publication is the Quarterly Accounting and Auditing Reference Guide, Issue 2. Focusing on accounting, auditing and reporting issues with wide practice applications, this reference aid will benefit non-governmental accountants in public accounting and private industry. Available now at www.cpafirmsupport.com/home/OurServices/tabid/65/Default.aspx

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Commission Studying the Future of Accounting Education

Now's your chance to tell a new commission what you think needs to be taught to future accountants. The American Accounting Association (AAA) and the AICPA have formed a new commission to study possible future paths of higher education for students who plan on becoming accountants. The "Pathways Commission" will ask for input from all areas the accounting community. This includes individuals and representatives from organizations that impact the various current accounting education pathways.

According to Bruce Behn, University of Tennessee professor and chair of the commission, the commission's goal is to facilitate an open, transparent discussion to be supported by both technolgy and public discussions.

The commission recognizes the difficulty of sustaining the momentum for change in the dynamic environment of accounting practice and education. For this reason the commission's efforts are structured to continue into the future.

The commission was formed to study accounting pathways because a number of forces are affecting accounting education including:

• Shortages of qualified teachers with accounting doctorates,
• The need to revise the accounting curricula regularly in light of fast-paced business changes,
• University budget constraints that threaten to make the cost of education prohibitive, and
• The need for training in specialized areas to meet the profession's demands.

The commission will hold its first meeting Oct. 15-17 in Washington, D.C.

More information on the commission may be found at http://www.pathwayscommission.org/.

New Publication
Our newest publication is the Quarterly Accounting and Auditing Reference Guide. Focusing on accounting, auditing and reporting issues with wide practice applications, this reference aid will benefit non-governmental accountants in public accounting and private industry. Available now at www.cpafirmsupport.com/home/OurServices/tabid/65/Default.aspx

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