100+ corporate counsel declare FASB's litigation contingency reporting requirements do more harm than good

BVWire is following the story of the August 18th letter signed by a host of Association of  Corporate Counsel's leading members.   ACC  and many of their members believe that the requirement that shareholders know about impending risks from litigation will alert the tort bar to insurance and other funds that can be pursued--delaying settlements and counterproductively inducing more litigation.

FASB had dropped this proposal in 2008, and recently reintroduced it, causing ACC's response.  Some commentators feel that FASB, facing the twin threats of Bob Herz' early retirement, and the increasing dominance of IASB, is struggling anyway--so now's a good time to go on the offensive regarding fair value issues.

Among those signing ACC's letter were its key officers, including Patricia Hatler, chief legal and governance officer at the Nationwide Mutual Insurance Company; J. Alberto Gonzalez-Pita, general counsel of HCP, Inc.; Jonathan Oviatt, chief legal officer of the Mayo Clinic; Michele Gatto, corporate services & chief legal officer at the National Life Group; and Bradford Smith, general counsel of Microsoft Corporation and chair of the ACC Board Advocacy Committee.

Will the outcome of this regulatory issue influence business valuation standards? At this time, BVWire believes the answer is "no."   Appraisers are mandated to form their own opinions about future cashflows and risks--all of which contribute to the income approach and methods.  If there is litigation in the works, that will influence both the income projections and the discount rate--whatever FASB ultimately decides, and whatever strategy the plaintif bar adapts.