Date: July 2008 To: Interested Parties Re: Proposed Amendment to FASB Statement No. 5 Expanding Disclosure Requirements for Loss Contingencies On June 5, 2008, in an effort to enhance disclosures about loss contingencies, the Financial Accounting Standards Board (“FASB”) published an exposure draft of a proposed new statement of financial accounting standards that would amend the disclosure requirements for loss contingencies currently governed by FASB Statement No. 5, Accounting for Contingencies (“FAS 5”), and loss contingencies recognized in a business acquisition covered by FASB Statement No. 141, Business Combinations (“FAS 141”). 1 The proposed statement would apply only to loss contingencies that are or would be recognized as liabilities, such as those related to pending or threatened litigation. 2 The proposed statement would not change the recognition and measurement guidance for loss contingencies. The proposed disclosures will create substantial burdens for issuers in litigation and may, in many cases, be prejudicial to their interests. Accordingly, this proposal is of great interest to issuers and their advisors as well as bar and other professional associations. The attached chart compares the current disclosure requirements with the new requirements being proposed by the FASB. As illustrated by the chart, the proposal would: • require expanded qualitative and quantitative disclosures about loss contingencies; • require a detailed tabular reconciliation of changes in the amount of loss contingency accruals in annual and interim financial statements; • require expanded qualitative and quantitative disclosures for loss contingencies recognized in a business combination; and • require disclosures in respect of remote contingencies that are expected to be resolved within a year and could have a “severe impact” (defined as a significant 1 The version of FAS 5 currently in effect is available at http://www.fasb.org/pdf/fas5.pdf. The exposure draft is available at http://www.fasb.org/draft/ed_contingencies.pdf; and a summary of FASB decisions on the proposal is available at http://www.fasb.org/project/accounting_for_contingencies.shtml. 2 Accordingly, the proposed statement would not apply to loss contingencies that would be recognized as asset impairments, such as allowances for doubtful accounts. Other contingencies for which there is other applicable disclosure guidance, such as guarantees, are also excluded from the scope of the proposed statement.