Accounting Bureaucrats Aid Trial Lawyers
The Wall Street Journal has an editorial explaining how the Financial Accounting Standards Board “wants to require companies to account for the potential cost of ongoing litigation,” even lawsuits that are more likely than not to fail, requiring them to publicly speculate about potential judgments against them by assigning them an estimated value. If they understate the estimate, the companies may then face sanctions under securities laws.
Trial lawyers will use any such estimate to make it seem like the companies must be guilty of something, or why would they give an estimate above zero? They will also use it to argue for huge damage awards, using any such estimate as a floor for potential liability.
At Point of Law, Ted Frank and Walter Olson describe seven ways that the FASB’s proposed changes will enrich trial lawyers and shortchange shareholders. FASB’s public comment period on the changes ends tomorrow.