General counsel who reduce what the spend on external law firms should get credit for those reductions whether the savings are cash savings or reductions in reserves. Or so thinks this non-accountant.
Law departments that face significant litigation set up reserves. If spending on law firms is applied against those reserve accounts, it may be that the law department on a profit & loss (P&L) basis shows no savings if it reduces those expenditures.
If the law department institutes effective cost management, it will show savings on a cash basis, even if not on a P&L basis.
Stated differently, law departments can face a different decision tree if their efforts are measured against the income statement or against reserves.