FASB Considers Expanding Required Disclosure of Lawsuits

Leslie Seidman of the FASB says that the threshold for requiring disclosure of a lawsuit may soon be reduced. Presently, disclosure requires an 80% likelihood that the plantiff will prevail. Seidman says that reducing this percentage to 51% is a real possibility. By contrast, the International Accounting Oversight Board prefers an expected value method. Under this method, a $2,000,000 million with a 40% chance of success would be valued at $800,000.

I tend to agree with the premise that 80% is too high a threshold for disclosure. As to whether the 51% or expected value approaches are better--perhaps a hybrid where a minimum likelihood of 20-25% (to take out frivolous suits) is used, then apply the expected value approach.