The Financial Accounting Standards Board has decided to retreat and regroup from its plan to call for more disclosure about the potential outcomes of contingencies, such as lawsuits and other pending, uncertain events.

Barraged by 239 comment letters to date on its proposal to amend Financial Accounting Statement No. 5: Accounting for Contingencies, FASB has decided to come up with a new model for how it will compel more disclosure. As such, the board plans to spend another year developing a new plan and field testing it before issuing a new proposal.

FASB staff told the board in a meeting this week that preparers and the legal profession generally trounced the proposal out of concern that the compulsory disclosures would compromise their leverage and impede the final outcome, especially with regard to lawsuits. Staff said the legal profession in particular pointed out that the proposed disclosures would fly in the face of securities rules around speculative, forward-looking statements.

Investor advocates, on the other hand, generally cheered FASB’s call for more disclosure, FASB staff said. Staff members told the board that even as the legal and preparer communities bristled over the plan, they also conceded they probably could provide more instructive disclosure to users of financial statements.

The staff has some ideas for developing a new model that would flesh out more disclosure but without compromising tenuous legal positions. Staff members want to develop the model with board input and field test it using live but settled cases in various corporate settings. The staff has a few companies already lined up as willing participants in the field testing but is looking for more.

Given the new direction, staff said preparers can expect at least another year before any new standard would become effective, with a new target effective date set for Dec. 15, 2009. A handout prepared for FASB’s meeting this week provides further details on the proposed field testing.