The Financial Accounting Standards Board is refining its planned disclosure requirements around possible litigation-related losses, or contingencies, to extract more information out of management but without forcing them to compromise legal strategies or privileged information.

FASB determined at a recent meeting that it will require companies to focus their disclosures on describing the dispute, not predicting the outcome. That’s a significant departure from FASB’s original proposal, which focused on requiring entities to predict for investors whether the company will lose a case and how much money it could lose as a result.

FASB was bombarded with mail from corporate legal experts who said the proposed accounting rule was impossible because it would force companies to show their hand in a way that would violate attorney-client privilege and prejudice the outcome of the case. The board agreed to rethink the approach, but still is convinced companies should disclose qualitative and quantitative information about a possible litigation loss so readers of financial statements can understand the nature and potential significance of the claim.

FASB has determined management should summarize the information that is publicly available about a case and tell investors where they can get more information from such public sources if they want to study it further. As the case draws closer to a resolution and the likelihood and magnitude of loss become clearer, disclosures should become more robust, FASB has decided.

Greg Rogers, an attorney with Guida, Slavich & Flores, said the board is moving in a direction that is likely to be more accepted by reporting entities, attorneys, and auditors. “Lawyers will like FASB’s proposal to focus disclosures on the contentions of the parties rather than predictions about future outcome,” said Rogers. “Predictions about future outcomes are the most likely type of disclosures to involve privileged information and give rise to prejudicial outcomes.”

Rogers still sees some controversy ahead around FASB’s plan to require entities to describe publicly available information, but it will be a more difficult position to challenge. “This could force disclosure of plaintiffs’ alleged damages and other information that defendants may view as unrealistic and misleading,” he said. “However, opponents cannot assert attorney-client and attorney work product privilege to defeat disclosure of information that is already in the public domain.”