Accounting Disclosure Support
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.
A Quantitative Basis
Given the heightened scrutiny now attached to the quality of financial disclosure and the very real likelihood that accounting regulations will at some point demand more, companies with large legal exposures would do well to pre-empt the issues by exploring more rigorous and quantitative methods for valuing legal liabilities.
Our own process and methodology in legal dispute risk analysis lends itself very well to providing quantitative guidance and support for accounting disclosure of contingent claims. By applying our methods, existing expert systems can be used to compute more accurate litigation values and provide a more complete picture of legal risk.
More importantly, our methods lend rigour to a process of disclosure estimation that currently leaves companies vulnerable to criticism and, in the worst case, further dispute. Using quantitative models can provide corporate litigants with a sound, documented basis for disclosure decisions.
Services for Accounting Firms
Auditors, now more than ever, need to be ahead with respect to these issues and provide their clients with appropriate education and guidance. To facilitate this leadership role, SettlementAnalytics provides auditing firms with educational seminars concerning the game theory analysis of corporate litigation. Our seminars provide the opportunity for auditing firms to quickly get up the curve on the application of game theory to dispute analysis and how it can provide tangible insights to support claim valuations.
Our seminars survey the leading academic ideas in this area. We cover the integration of various quantitative techniques to game theory including information economics, Monte Carlo simulation and financial analysis. And we address in detail important considerations in the practical application of game theory to real world litigation scenarios.
Our education seminars can be organised on-site for auditing firms anywhere in the world and can be customised to address particular firm interests. SettlementAnalytics has so far developed two main seminar series. The first is called ‘Quantitative Settlement Bargaining Analysis’ and is designed to provide a detailed overview of game theory application to commercial disputes. The second is an educational training seminar on the use of our game theory software application platform called OptiSettle.
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