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Feature William Scott Partner Stikeman Elliott LLP Toronto The need for more disclosure under IAS 37 underscores the ten- 3290 rule, organizations would report legal claims when it “like- sion that can exist between the professions.BruceWinter,chair of ly” a payment must be made, something that over time has been the AASB, notes that while anytime “there is judgment there is interpreted as meaning there is a greater than 70 per chance that room for discussion and debate,” he sees no reason why IAS 37 a payment must be made.The difference will likely provoke stir- “should create new types of issues that we haven’t faced up to and ring debate between auditors and lawyers in the future, and may dealt with in the past.” even compel lawyers to review decisions they made in the past Headon, who will become CBA president in 2013, has a dif- about legal claims, says Kerr. ferent take:“There is certainly a real tension between doing harm IAS 37’s requirement that reporting entities be able to give a on the legal side by revealing too much and the desire to make reliable estimate of the amount that might be owing due to the sure that a full and complete picture is presented by the auditors.” legal claim will probably spur even more discussions. Under IAS The differences stem in part from the way that IFRS and 37, reporting entities are required to provide a “best estimate,” a GAAP interpret when legal claims must be reported. Under both higher test than GAAP’s “reasonable estimate.” sets of standards financial statements should recognize an obliga- In order to come up with a “best estimate” organizations will tion arising out of a past event when it is probable that a payment have to perform complex measurement calculations, and consult ALENA GEDEONOVA (LEFT & RIGHT) a wider net and a lower threshold than GAAP. By using a “more a delicate operation in certain cases.Besides being pressed to con- with their counsel to confirm their analysis.That may prove to be will have to be made to settle the legal obligation. But IFRS casts firm a dollar figure over the potential impact of a possible adverse than likely approach” reporting entities under IFRS would be judgment,in itself a major headache when so many disparate ele- expected — even though there is no official interpretation — to report legal claims when there is a greater than 50 per cent likeli- ments must be taken into account in litigation cases, lawyers are concerned that the“best estimate”may harm the interests of their hood it would be settled against them. Under GAAP’s Section AUTOMNE 2011 CCCA Canadian Corporate Counsel Association 39