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von drsch00: Im unteren Part geht es um die zwingenden Vorschriften im Fall von laufenden und Ausstehenden Zahlungsverpflichtungen in welcher Form auch immer. (anfallende Gerichtstermine, settlements usw.) Hier wird's interessant: aus dem Ihub Forum vom user: rainbow111 http://www.perkinscoie.com/news/pubs_detail.aspx?publication… Top 10 Issues to Consider When You Are Sued: Issue #8: Disclosing Litigation and Reserving for Litigation Losses 04.11.2007 Determining when and how to account for loss contingencies is an important decision for companies that have been sued. Reserving funds for possible litigation losses may significantly affect reported earnings. Worse, failing to book appropriate reserves may lead to restatements of earnings, which could invite an SEC investigation or shareholder litigation. Apart from reserves, the mere decision whether to disclose pending litigation in financial statements can also have major financial and legal ramifications. Moreover, both public and nonpublic companies are affected because both must properly account for and disclose litigation loss contingencies to comply with Generally Accepted Accounting Principles (“GAAP”). Unfortunately, setting loss reserves is not as easy as following simple steps or plugging numbers into a formula. The accounting standards are muddled and applying them requires a great deal of discretion and judgment. Even the disclosure rules are fraught with peril. When Is a Litigation Loss Reserve Required? Under Financial Accounting Standard No. 5 (“FAS 5”), a company must create a litigation loss reserve if (1) a loss is probable and (2) the amount of the expected loss is material and reasonably estimable. (1) Is a Litigation Loss “Probable”? The first challenge is to figure out when a loss is “probable.” FAS 5 identifies three categories of likelihood: “probable,” “reasonably possible” and “remote.” Probable. According to FAS 5, a future event is “probable” if it is “likely to occur.” FAS 5 does not define “likely,” except to say that “probable” does not infer “virtual certainty.” Formal definitions aside, “probable” is usually interpreted in practice as meaning “highly likely.” In evaluating the probability of an unfavorable litigation outcome, factors to consider include: (a) the nature of the litigation, claim or assessment; (b) the progress of the case; (c) the opinions of legal counsel and other advisers; (d) the experience of the company and others in similar cases; and (e) any decision by management as to how the company will respond to the lawsuit. Determining whether a loss is probable requires considerable judgment, and the assessment may change as the litigation progresses. Reasonably Possible. If the “chance of the future event or events occurring is more than remote but less than likely,” the adverse outcome is deemed “reasonably possible.” A loss reserve is not required, but disclosure may be (see below). Remote. If the chance of an adverse outcome is slight, the event considered is “remote,” and that ends the analysis. No reserve or financial statement disclosure is required. Periodic re-assessments of pending and threatened litigation may be necessary, however, to determine whether a loss that once seemed remote is now probable or reasonably possible. (2) If a Loss Is Probable, Is the Amount of the Loss Reasonably Estimable? If a company determines that a loss is probable, it next must consider whether the amount of the loss will be material and if it can be estimated. If the loss is not material or cannot be reasonably estimated, no reserve is required. Even if it is impossible to estimate the exact amount of probable loss, however, a company should attempt to estimate the range of possible losses. If no amount within the range appears to be the best estimate, the company should reserve the low end of the range and then disclose the remaining amount, up to the high end of the range, as a “reasonably possible” loss. When Is Disclosure Required? If a company determines that a loss is only “reasonably possible” or that a loss is “probable,” but the amount is not reasonably estimable, the company need not establish a reserve, but it still must disclose the nature of the possible loss and give an estimate of the possible loss or range of loss. The key is to ensure that the financial statements are not misleading. In addition to the disclosure requirements of FAS 5, public companies must also disclose significant legal proceedings under SEC Regulation S-K Item 103, which requires disclosure of material legal proceedings in both the annual report (on Form 10-K) and the quarterly report (on Form 10-Q), unless the claims represent less than 10 percent of the company’s current assets. SEC Reg. § 229.103. Thus, in some instances Regulation S-K may require disclosure of pending litigation that need not be disclosed under FAS 5. The following chart illustrates the decision process: Poster's note, the chart didn't copy. Practical Tips Companies that either fail to establish sufficient litigation loss reserves or overstate litigation loss reserves (so that the company can “manage earnings” by releasing reserves into income in bad years) have faced private litigation and SEC enforcement actions. The following tips may help avoid common pitfalls. Tip 1: Establish a company reserve policy and apply it consistently. A written and consistently applied reserve policy may help a company defend a decision not to book a reserve. Establishing and following the policy helps the company avoid appearing opportunistic in setting and maintaining reserves. Tip 2: Err on the side of disclosure where there is any chance that a litigation loss could be considered “reasonably possible.” Failing to disclose the possibility of a material litigation loss can result in lawsuits and enforcement actions if it later becomes clear that reserves were inadequate and company executives knew or should have known that a material loss was reasonably possible. Tip 3: Book a reserve only where a loss is probable and the amount of loss can be reasonably estimated. A reserve should not be booked unless both FAS 5 requirements are satisfied. The SEC views creation of reserves for an improbable amount of loss to be a form of earnings management. If a loss is only reasonably possible, the company should disclose the nature of the contingency and an estimate of the possible loss or range of loss (or state that such an estimate cannot be made). Tip 4: Reverse a reserve only where a change in facts makes the reserve (or a portion of the reserve) unnecessary. The SEC looks unfavorably on a company’s release of reserves into income where no specific development or change justifies the release. Reversing a reserve in a bad year is particularly likely to be viewed as opportunistic. Tip 5: Do not create general reserves to cover unspecified claims. Litigation reserves should be determined on a case-by-case basis and should not be created for general future litigation costs and expenses. Tip 6: Periodically reassess pending and threatened litigation to determine the adequacy of reserves. The probability of a loss and the ability to estimate the amount of the loss will likely change as the litigation progresses. A litigation loss considered remote when the suit was filed may later become reasonably possible or probable if dispositive motions are unsuccessful or discovery reveals damaging facts. It is also important to reassess the amount of existing reserves. If the underlying case settles, for example, the reserves must be reversed into income. This Update touches only briefly on the complex topic of litigation reserves. For more information, please contact the Perkins Coie attorney with whom you work. This Update is also part of a series entitled "Top Ten Issues to Consider When You Are Sued." Read additional Updates in this series. |
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| aus der Diskussion: | Washington Mutual - Faktentread |
| Autor (Datum des Eintrages): | chriroe (25.02.10 10:59:22) |
| Beitrag: | 1,132 von 2,807 (ID:39009096) |
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