Companies Brace for New U.S. Accounting Rule

Jack Humphrey, Regulatory journalist
October 05, 2010 /

A proposed change in accounting have Canadian businesses operating in the United States bracing for what could alter the way they are presently reporting the lawsuits persons have filed against their companies.

This new rule scheduled to be effective before the end of 2010 and created by the Financial Accounting Standards Board, will require companies that have operations in the United States to report pending lawsuits and the time frame for settling these lawsuits.

Previously, only lawsuits requesting large settlements became public knowledge.

The companies criticism of the change in policy has sparked large amounts of backlash due to public disclosure may trigger unrealistic and high settlement demands as well as the possibility of the settlement amounts misleading investors.

Since July when the proposal was announced firms have formed a united front in opposition to the proposal. A letter denouncing the proposal’s changes was signed by Canadian corporations and U.S. Companies alike.

These companies are arguing that additional disclosure of the settlements are unfair because if the defendant’s expectations are revealed it will benefit the plaintiff in the case.

The companies who will be affected by this ruling are mystified why the current rules where changed since there are no reported grievances to prompt changing the rule.

This ruling will affect Canadians in particular since many are expanding their operations in the U. S. Banks in Canada are also concerned regarding the rule change because if they have a contractual agreement with a United States business and the company is sued, they will be responsible for disclosing the terms of the settlement as well.

On October 8, 2010 a panel will meet at the New York offices of AICPA to recommend alternative structures and models related to GAAP standard settings to regulate private owned companies.

 

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