Stan Keller, a Boston-based partner in Edwards Wildman's
Business Law Department, commented on how the Financial Accounting Standards Board (FASB) has drafted a new update to accounting standards that would require management to warn investors if it is more likely than not that the company will not be able to meet its financial obligations over the next 12 months unless it takes extraordinary measures, or whether management knows or considers it probable the company will falter in the next 24 months in Compliance Week. In the article, "FASB to Require Troubled Companies to Fly a Red Flag
," Keller said, “It's a significant proposal in a sensitive area. This is a particularly sensitive disclosure because of the concern that the disclosure itself ends up becoming a self-fulfilling prophecy.” According to Keller, management will also be worried about the fact that it will get no safe-harbor protections when making the disclosure in financial statements as it might if the disclosure were required instead in management discussion and analysis. “That may be the right place for this kind of disclosure, where it can be put into context and where there are safe harbors,” added Keller.