New Opportunities for Obtaining and Using Litigation Reserves and Disclosures

Abstract:     
Following the publication of "Opportunities for Obtaining and Using Litigation Reserves and Disclosures," which highlighted the helpful information about litigation reserves that a litigator can often detect or discover from an opponent's financial statements, accounting books and records, tax returns, public filings with the Securities and Exchange Commission (the "SEC"), and auditor, two important regulatory developments occurred in early 2003 that create additional opportunities to obtain information about an opponent's assessments of (i) expected liability in the underlying case or (ii) obligations or settlements in similar cases. First, pursuant to the Sarbanes-Oxley Act of 2002, the SEC issued final regulations that require new disclosures from many public companies about certain contractual obligations, including litigation settlements and, perhaps, other estimated amounts necessary to resolve litigation in the Management's Discussion and Analysis section ("MD&A") of various securities filings that contain financial statements for fiscal years ending on or after December 15, 2003. Second, the Treasury Department issued new tax shelter regulations, effective February 28, 2003, that require taxpayers to disclose specified confidential transactions, including certain out-of-court settlements, to the Internal Revenue Service on Form 8886, Reportable Transaction Disclosure Statement. Finally, this update notes that the SEC's new rules on the Improper Influence on Conduct of Audits, which became effective on June 27, 2003, further threaten the viability of the American Bar Association's Statement of Policy Regarding Lawyer's Responses to Auditor's Requests for Information.

Keywords: litigation reserves, litigation disclosures, litigation accruals, contingencies, contingent liabilities, Management's Discussion and Analysis, Sarbanes-Oxley, tax shelter disclosures, discovery, litigation

JEL Classifications: K10, K13, K20, K21, K22, K31, K32, K34, K40,

Accepted Paper Series