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September 23, 2008

FASB Correct to Delay Changes to Accounting Standards

WASHINGTON, D.C.—The U.S. Chamber of Commerce welcomed today’s decision by the Financial Accounting Standards Board (FASB) to delay its proposal to require speculative disclosure of the potential costs of civil litigation—changes that would have exposed businesses to increased litigation and uncertainty, at a particularly volatile time for the U.S. economy

“During this time of near unprecedented economic volatility, the last thing American companies, workers, and investors need to confront are new, complex rules that could drive businesses away from the U.S. capital markets,” said David Hirschmann, President and CEO of the Chamber’s Center for Capital Markets Competitiveness. “The FASB should be commended for its considered approach in responding to the public outcry against this proposal, and we continue to support its mission to ensure fair and meaningful accounting disclosures are made to the public.”

In June, the FASB proposed an amendment to Statement of Financial Accounting Standard No. 5 (FAS 5) – Accounting for Contingencies, which would have significantly increased the amount of information publicly traded companies were required to disclose regarding pending or threatened litigation.  Originally scheduled for implementation at the close of 2008, the FASB today announced it will delay the implementation of any rule modifications for at least one year.  The FASB is expected to issue a revised proposal within the next several weeks.

“The FASB proposals would have further tilted the odds in the plaintiffs’ lawyers’ favor by exposing businesses—and their shareholders—to additional abusive lawsuits,” said Lisa A Rickard, president of the U.S. Chamber Institute for Legal Reform.  “In shelving these proposed rule changes, the FASB is ensuring that the value of investors’ shares will not be eroded by predatory lawsuits, and that businesses’ attorney-client and work product privileges will continue to be protected.”

The Chamber has vigorously opposed the FASB proposed changes, arguing the proposed amendments would not have the effect desired by the Board—namely to benefit investors and other users of financial statements with an increased amount of information related to loss contingencies.  Instead, the additional proposed disclosures would have required public companies to release an excess of immaterial information to investors and, in many instances, information that was unreliable, leading to confusion. 

The U.S. Chamber is the world’s largest business federation representing more than 3 million businesses and organizations of every size, sector, and region.

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