The FCPA Report

The definitive source of actionable intelligence covering the Foreign Corrupt Practices Act

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By Topic: Reserves

  • From Vol. 2 No.16 (Aug. 7, 2013)

    Estimating Loss: When and How to Calculate and Disclose Financial Reserves for FCPA Settlements (Compendium of SEC Filings)

    When a public company is negotiating an FCPA settlement with the government, it must consider its concurrent obligation to set and publicly disclose a financial reserve for that settlement.  This raises various issues.  How early should a company set a reserve?  When should the company disclose that reserve?  What language should the disclosure include?  The FCPA Report has published a three-part series (see part onepart two and part three) addressing crucial issues companies face when considering whether and how to compute and disclose financial reserves for FCPA settlements.  With help from Intelligize’s database and search tools, The FCPA Report has also organized this long-form compendium of actual FCPA reserve-related disclosures from recent SEC filings to complement the series.  The disclosures are grouped based on when in the investigation the company established a reserve, as follows: (1) Reserve Disclosure Made During Early Discussions with the Government; (2) Reserve Disclosures Made During the Course of the Government Investigation; and (3) Reserve Disclosures Made on the Eve of Settlement.  These real-world examples of relevant disclosures can serve as precedents for counsel tasked with drafting or reviewing SEC filings when a company is considering setting a reserve in anticipation of an FCPA settlement.  To maximize the value of this compendium as a practice tool, this compendium also contains links to each of the filings discussed and quoted.

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  • From Vol. 2 No.15 (Jul. 24, 2013)

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

    When a company is involved in FCPA settlement negotiations with the government, it must consider whether those negotiations are likely to lead to a probable and estimable financial loss.  If so, the company may be required to reserve funds for the potential settlement and disclose its reserve in SEC filings.  When is setting a reserve appropriate?  How should that reserve be calculated?  When is disclosure of the reserve necessary?  This article is the third in a multi-part series addressing these and related crucial issues.  In particular, this article discusses how to calculate a reserve and how to craft the disclosures accompanying the setting of a reserve.  The first installment in the series discussed the accounting principles governing the setting of the reserve, examined when during an investigation a company should set a reserve and described who should be involved in setting the reserve.  The second article in the series discussed the issues a company should consider before setting a reserve, the risks related to setting reserves and the risks of miscalculating the reserve.  The final installment in the series will be a compendium of actual FCPA reserve-related disclosures from recent SEC filings compiled with help from Intelligize’s database and search tools.

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  • From Vol. 2 No.14 (Jul. 10, 2013)

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

    When a publicly traded company is negotiating an FCPA settlement, it must consider reserving funds for the associated loss.  Calculating a reserve becomes necessary when the company faces a probable, estimable and material loss.  Once that occurs, the company will likely be required to make a public disclosure about the reserve, exposing it to a host of potentially adverse consequences, including harm to the company’s reputation, a decrease in stock price and increased exposure to foreign prosecutions.  How should a company involved in settlement negotiations with the government address this sensitive issue?  How should it 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 FCPA Report is publishing a multi-part series addressing these crucial issues.  This article, the second in the series, discusses the issues a company should consider before setting a reserve, the risks related to setting reserves and the risks of miscalculating the reserve.  The first installment in the series discussed the accounting principles governing the setting of the reserve, examined when during an investigation a company should set a reserve and described who should be involved in setting the reserve.  See “Estimating Loss: When and How to Calculate and Disclose Financial Reserves for FCPA Settlements (Part One of Three),” The FCPA Report, Vol. 2, No. 13 (Jun. 26, 2013).  The third and final 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.

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  • From Vol. 2 No.13 (Jun. 26, 2013)

    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 FCPA 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.

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