The Association for Financial Professionals (AFP) today sent a comment letter to the Financial Accounting Standards Board (FASB) to express concern about a requirement in a recent FASB exposure draft that could disproportionately affect smaller companies.
The letter was in response to FASB's request for comment on its Exposure Draft of the Accounting Standards Update on Contingencies (Topic 450) titled, Disclosure of Certain Loss Contingencies, which was issued July 20.
AFP understands and supports FASB's efforts to improve transparency in financial reporting. Our concern with this proposal centers on the requirement that companies disclose such detailed proprietary information that may unintentionally prejudice its position in pending litigation. In addition, requiring companies to disclose premature and unsubstantiated information could potentially mislead users of the financial statements and cause an unnecessary, unfavorable and unwarranted market reaction.
In particular, small and mid-sized companies might experience a negative impact from disclosing detailed and proprietary information. That's because a smaller company that reveals proprietary information assumes a greater risk of compromising its position in litigation, especially in circumstances where there may only be one material case pending.
"The disclosures proposed by FASB might give companies an unfair disadvantage in litigating suits filed against them," said Salome Tinker, AFP's director of financial accounting and reporting. "Investors and other users of the financial statements want greater transparency and disclosure, but this proposal goes a little too far."
AFP urges the FASB to reach out to the legal community to gather more information about the potential impact that this proposal could have on all reporting companies before issuing the final standard.
AFP represents financial professionals from over 5,000 corporations, including the Fortune 1,000 and the largest of the middle market companies. Membership includes a significant number of corporate treasurers who are responsible for the protection and management of corporate cash, and controllers and CFOs who are responsible for their corporate accounting, financial reporting and regulatory compliance.
AFP's director of financial accounting and reporting, Salome Tinker, is available to provide background information about AFP's comment letter. Contact 301.907.2862.
Read the comment letter: www.afponline.org/contingency