The Financial Accounting Standards Board (FASB) has reportedly issued a proposal that would require companies to disclose information about potential litigation costs when they publish their financial disclosures. A private sector authority that governs the preparation of financial reports by nongovernmental entities, FASB first considered litigation cost disclosures in 2008, but withdrew its suggestion amid criticism from business interests. The board has since reinitiated the project after purportedly receiving “strong and extensive input [from] investors who want greater transparency.”  

The U.S. Chamber of Commerce, however, has faulted FASB for failing to reveal “which investors—or even which categories of investors—were consulted,” according to an August 18, 2010, editorial in The Wall Street Journal, which argues that the latest proposal would benefit plaintiff’s lawyers by “offering roadmaps to new litigation and bigger settlements.” The editorial specifically cites provisions that would require companies to report their liability insurance coverage and average settlement amount, thereby “[setting] a prejudicial standard for all companies in similar litigation to meet.” It also lambastes a standard that would compel corporations “to do the trial bar’s research” by documenting “the existence of studies in reputable scientific journals … that indicate potential significant hazards related to the entity’s products or operations.”

“Disclosure about concrete liabilities is helpful to investors, but the new FASB rules would force companies to divulge snapshot details of ongoing litigation that put investors at greater risk of loss,” the editorial concludes, adding that FASB has shown a tendency “to stubbornly insist on plowing ahead, as if it is the sole authority on virtuous disclosure.”