Elevated Disclosure Risk
In the aftermath of the financial crisis there is now an elevated risk attached to the quality and basis of disclosures pertaining to contingent liabilities such as on-going legal claims. It is fair to say that the legal risk attached to the disclosure of legal risk has never been higher.
As accounting regulation and securities laws place a greater emphasis on the disclosure of contingent legal liabilities, public companies and their auditors are in ever increasing need of an accurate, documented, auditable and systematic approach to the valuation of legal claims and their risk measurement.
Although FASB has recently abandoned its proposal to enhance disclosure requirements for contingent liabilities such as litigation, questions still remain as to the proper requirements of disclosure even under the current policy. At what point, for example, does a contingent loss associated with a legal claim reach the disclosure thresholds of “probable”, “reasonably possible” or “remote”? While the use of qualitative expert opinion may have sufficed in the past, exclusive reliance on this approach going forward is less than ideal. [more]
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