On September 24, 2008, the Financial Accounting Standards Board (FASB) adopted a plan to "redeliberate" its controversial proposal that requires expanded disclosures in loss contingencies financial statements. Put simply, the FASB staff will develop an alternative to FASB's prior proposal and will "field test" the two models. FASB also extended the proposed effective date for any new standard by one year, to fiscal years ending after December 31, 2009.

FASB's initial proposal, which was issued in an Exposure Draft on June 5, 2008, would require financial statement preparers to include detailed quantitative and qualitative information about the potential impact of loss contingencies, particularly litigation claims, on the company's financial position. See our prior alert, FASB Proposes Expanded Disclosure Standard for Loss Contingencies (June 17, 2008). FASB received over 235 comments on the proposed standard. The proposal attracted strong opposition from a broad spectrum of companies, trade associations and business groups, and representatives of the legal profession. The major concerns identified by these opponents related to the prejudicial impact that disclosure of information about litigation could have on a company's litigation posture and the potential waiver of attorney-client privilege that could result from these disclosures.

In light of the comments it received, the FASB staff will develop an "alternative model" for loss contingency disclosures (the substance of which was not disclosed) intended to address the concerns regarding prejudicial impact and attorney-client privilege. The staff will engage in field testing by asking volunteers to prepare sample disclosures based on the proposed standard and on the alternative model. FASB then expects to conduct a roundtable discussion on the proposal in early January or March 2009, and then to redeliberate the proposal in late March and April 2009. Given the new timetable, FASB extended the proposed effective date as noted above.

FASB's actions to engage in field testing and to redeliberate the proposed standard, as well as to extend the effective date, are favorable developments for companies, lawyers and others concerned about the impact of the FASB proposal. Still, FASB has not backed off entirely from consideration of expanded contingency disclosure, and it is too early to predict what the outcome of the FASB process will be.