Proposed ASU Contingencies Topic 450 Disclosure of Certain ...

1 Contingencies ( Topic 450) Disclosure of Certain Loss Contingencies This Exposure Draft of a Proposed Accounting Standards Update of Topic 450is issued by the Board for public comment. Written comments should be addressed to:Technical DirectorFile Reference No. 1840-100 Proposed Accounting Standards Update Issued: July 20, 2010 Comments Due: August 20, 2010 The FASB Accounting Standards Codification is the source of authoritative generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities.

2 An Accounting Standards Update is not authoritative; rather, it is a document that communicates how the Accounting Standards Codification is being amended. It also provides other information to help a user of GAAP understand how and why GAAP is changing and when the changes will be effective. Notice to Recipients of This Exposure Draft of a Proposed Accounting Standards Update The Board invites individuals and organizations to send written comments on all matters in this Exposure Draft of a Proposed Accounting Standards Update.

3 Responses from those wishing to comment on the Exposure Draft must be received in writing by August 20, 2010. Interested parties should submit their comments by email to File Reference No. 1840-100. Those without email should send their comments to Technical Director, File Reference No. 1840-100, FASB, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116. Do not send responses by fax. All comments received constitute part of the FASB s public file. The FASB will make all comments publicly available by posting them to its website and by making them available in its public reference room in Norwalk, Connecticut.

4 An electronic copy of this Exposure Draft is available on the FASB s website until the FASB issues a final Accounting Standards Update. Financial Accounting Standards Board of the Financial Accounting Foundation 401 Merritt 7, PO Box 5116, Norwalk, Connecticut 06856-5116 Copyright 2010 by Financial Accounting Foundation. All rights reserved. Permission is granted to make copies of this work provided that such copies are for personal or intraorganizational use only and are not sold or disseminated and provided further that each copy bears the following credit line: Copyright 2010 by Financial Accounting Foundation.

5 All rights reserved. Used by permission. Proposed Accounting Standards Update Contingencies ( Topic 450) Disclosure of Certain Loss Contingencies July 20, 2010 Comment Deadline: August 20, 2010 CONTENTS Page Numbers Summary and Questions for Respondents .. 1 4 Amendments to the FASB Accounting Standards Codification .. 5 33 Background Information and Basis for Conclusions ..34 47 Amendments to the XBRL Taxonomy .. 48 73 1 Summary and Questions for Respondents Why Is the FASB Issuing This Proposed Accounting Standards Update (Update)?

6 Investors and other users of financial reporting have expressed concerns that disclosures about loss Contingencies under the existing guidance on Contingencies 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 . Who Would Be Affected by the Amendments in This Proposed Update? 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 .

7 What Are the Main Provisions? The amendments in 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 all of the following: a. The nature of the loss Contingencies b. Their potential magnitude c. Their potential timing (if known). To achieve the above 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.

8 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). Available information may be limited and, therefore, Disclosure may be less extensive in early stages of a loss contingency. In subsequent reporting periods, Disclosure would be more extensive as 2 additional information about a potential unfavorable outcome becomes available.

9 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. If an entity provides disclosures on an aggregated basis, it would disclose the basis for aggregation. With respect to the Disclosure threshold, the amendments in this Proposed Update would require Disclosure of Certain remote loss Contingencies . This Proposed change in the Disclosure threshold would expand 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.

10 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 and enhance them by requiring additional disclosures, for example, in the case of litigation Contingencies , Disclosure of the contentions of the parties and how users can obtain additional information about the litigation.