FASB, AICPA working to clarify uncertain tax position guidance

FASB’s staff will work with the AICPA staff to clarify guidance regarding uncertain tax positions.

In May 2010, the AICPA Financial Reporting Executive Committee (FinREC) issued a technical practice aid, TPA 5250-15, that refers to Accounting Standards Update (ASU) No. 2009-06, Income Taxes (Topic 740)—Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities.

FinREC’s TPA said that nonpublic entities are required to make certain disclosures regardless of whether the entities have uncertain tax positions (also known as unrecognized tax benefits).

At a meeting of the Private Company Council (PCC) on Friday, PCC and FASB members said the guidance in the TPA should change and that such disclosures are necessary only if an entity has uncertain tax positions.

The AICPA staff is working with FASB’s staff to determine the best way to proceed in addressing the issue.

In the basis for conclusions section of the ASU, FASB concluded that no disclosure would be required if management determines there are no unrecognized tax benefits to record. FASB concluded that requiring such a disclosure would set a precedent for requiring a similar disclosure for all accounting standards for which there was no material effect on the financial statements. But the basis for conclusions is not part of the Accounting Standards Codification (ASC).

More flexibility considered

The PCC also decided Friday to review whether it should provide more flexibility to private companies in election and use of some of the GAAP alternatives it has created.

PCC member Larry Weinstock said more flexibility may be necessary to allow private companies to take advantage of:

• ASU No. 2014-07, Consolidation (Topic 810)—Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements; and
• ASU No. 2014-02, Intangibles—Goodwill and Other (Topic 350)—Accounting for Goodwill.

Current guidance suggests that private companies that do not elect an alternative the first time it’s available are not allowed to elect it in the future, unless they can establish preferability, as defined in ASC Topic 250, Accounting Changes and Error Corrections, according to Weinstock.

Weinstock said private companies should be able to elect to use the alternatives in the future if their circumstances change. For instance, a private company initially might not elect an alternative because it plans to undergo an initial public offering. If those plans change and the company decides to remain private, the current standards would prevent them from taking exceptions in the future.

The PCC asked FASB’s staff to undertake research that could provide more flexibility.

FASB member Daryl Buck encouraged the PCC to enable flexibility for entities that experience a change in circumstances, but not for those that simply lack awareness of the GAAP alternatives.

“Trying to argue that people aren’t aware of them, that’s a hard argument to make,” Buck said.

—Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.