The Financial Accounting Foundation (FAF) issued a post-implementation review (PIR) of FIN 48 (FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes). The PIR is a new process designed to help the FAF trustees with efforts to evaluate the effectiveness of accounting standards as well as the standard-setting process. The FAF trustees selected FIN 48 (now codified in FASB Accounting Standards Codification Topic 740, Income Taxes) to test the initial PIR procedures and modify them, as needed, to make them operational. The objectives of the PIR are to improve standard setting, in part, through a robust, independent, and credible process.
FIN 48 PIR objectives
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The interpretation was intended to reduce perceived inconsistencies in applying accounting rules to income tax contingencies. According to FAF, the objectives of the PIR team’s review of FIN 48 were:
- To determine whether FIN 48 is accomplishing its stated purpose;
- To evaluate FIN 48’s implementation and continuing compliance costs and related benefits; and
- To provide recommendations to improve FASB’s standard-setting process.
The PIR team reviewed FASB’s historical files; conducted stakeholder surveys, questionnaires, and interviews; and reviewed academic publications, footnote disclosures, and other public information for selected public companies. The team came to the following conclusions: (1) More information about income tax uncertainties is reported using FIN 48’s provisions when compared to the prior accounting guidance; (2) uncertain income tax positions are recognized and measured more consistently using FIN 48’s guidance when compared to the prior accounting guidance; (3) reported information about income tax uncertainties is more relevant since adoption of FIN 48; (4) on balance, the benefits of FIN 48’s improved consistency and reporting of income tax uncertainty information outweigh its costs.
The PIR contains four recommendations. The PIR team recommended that FASB (1) continue its efforts to improve user input in the agenda and early deliberation phases to evaluate alternatives addressing user needs; (2) should include in each standard a thorough discussion about the need for new financial reporting guidance and the benchmark characteristics of useful financial information considered; (3) should clearly describe its processes for evaluating a new standard’s cost-benefit relationship; and (4) should follow consistently its established policies and procedures related to re-exposing all or part of a proposed standard.
For a detailed discussion of the issues in this area, see “FIN 48 Post-Implementation Review,” by Scott F. Guertin, CPA, in the May 2012 issue of The Tax Adviser.
Alistair M. Nevius, editor-in-chief
The Tax Adviser
Also look for articles on the following topics in the May 2012 issue of The Tax Adviser:
- An analysis of the new interpretations of SSTS No. 1.
- A discussion of handling FBAR issues with clients.
- A look at due-diligence requirements.