Estimating Loss: When and How to Calculate and Disclose Financial Reserves for FCPA Settlements (Part One of Three)

It is no secret that FCPA settlements can be monstrously expensive.  When faced with such a substantial loss, publicly traded companies often have an obligation to reserve funds in anticipation of a potential settlement and to disclose the amount of that reserve.  How should a company involved in settlement negotiations with the government go about setting such a reserve?  When during those negotiations should the company begin to consider reserving funds for a future settlement?  How should the reserve be calculated?  How should it be disclosed?  The Anti-Corruption Report is publishing a multi-part series addressing these and other crucial issues.  This article, the first in the series, discusses the accounting principles governing the setting of the reserve, examines when during an investigation a company should set a reserve and describes who should be involved in setting the reserve.  The second article in the series will discuss the issues a company should consider before setting a reserve and the risks related to setting reserves.  The third installment will discuss how to calculate a reserve and how to draft the disclosures announcing the reserve.  It will also include a compendium of actual FCPA reserve-related disclosures from recent SEC filings compiled with help from Intelligize’s database and search tools.

To read the full article

Continue reading your article with an ACR subscription.