On April 14, 2010, the Financial Accounting Standards Board (FASB) decided to revise the proposed quantitative and qualitative disclosure requirements in its original Exposure Draft relating to disclosures on loss contingencies and to issue a revised Exposure Draft in May 2010. The objective of the disclosure is to enable readers of financial statements to understand the nature, potential timing and potential magnitude of loss contingencies. According to FASB, an entity must consider the following principles in determining the type of disclosure that is appropriate for its circumstances:
- During the early stages of a contingency’s life cycle, an entity must disclose information to help readers understand the nature and potential magnitude of a loss contingency. As additional information becomes available in subsequent reporting periods, disclosure must be more extensive.
- An entity may aggregate disclosures about similar contingencies, such as by class or type, so that the disclosures are understandable and not too detailed. If an entity provides disclosures on an aggregated basis, it must disclose the basis for aggregation.
FASB decided to maintain the existing requirement to disclose asserted claims and assessments whose likelihood of loss is at least reasonably possible. In addition, FASB decided that the disclosures shall apply to all entities except that the tabular reconciliation required for accrued contingencies is not required for nonpublic entities.
The revised Exposure Draft will have a 30-day comment period. It is expected that for public entities, the new requirements will be effective for fiscal years ending after December 15, 2010, and interim and annual periods in subsequent fiscal years. For non-public entities, the new requirements will be effective for the first annual period beginning after December 15, 2010, and for interim periods of fiscal years subsequent to the first annual period.