The Financial Accounting Foundation plans to conduct a post-implementation review of the standard governing accounting for income taxes to gauge how well it has performed.
The FAF, which oversees the Financial Accounting Standards Board and the Governmental Accounting Standards Board, has been conducting post-implementation reviews of several accounting standards to determine how well they have been performing for preparers and users of financial statements. Among them has been FIN 48, “Accounting for Uncertainty in Income Taxes.”
The next review will be of a related standard, FAS 109, “Accounting for Income Taxes.” Financial Accounting Statement No. 109 establishes financial accounting and reporting standards for the effects of income taxes that result from an organization’s activities during the current and preceding years. The objective of FAS 109 is to recognize the amount of taxes payable or refundable for the current year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an organization’s financial statements or tax returns.
FAS 109, which has been codified as Accounting Standards Codification Topic 740, “Income Taxes,” applies to public and private companies, and nonprofit organizations that file financial reports in accordance with U.S. GAAP.
“FAS 109 was chosen for review because it meets several of our post-implementation review criteria,” said FAF president and CEO Teresa S. Polley in a statement. “When it was issued, it represented a significant change in the accounting for income taxes and affected a wide range of organizations. Additionally, stakeholders frequently note that income tax accounting is a complex topic and over the years the FASB’s advisory groups have mentioned that it is an area that could be improved—both the accounting guidance and the information disclosed to investors.”
To date, the Financial Accounting Foundation’s post-implementation review team has completed reviews of two FASB standards: FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information (codified in Accounting Standards Codification Topic 280, Segment Reporting) in January 2013; and FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) (codified in Accounting Standards Codification Topic 740, Incomes Taxes), in January 2012 (see Accounting Standard for Business Combinations Mostly Works and Accounting Standard for Uncertain Income Tax Positions Needs Tweaking). The final reports of those studies are available on the FAF’s Web site. The post-implementation review of FASB Statement No. 141R, Business Combinations, is currently underway.
The post-implementation review process is supposed to help the FAF’s board of trustees with its ongoing efforts to evaluate the effectiveness of the standard-setting process for both FASB and the Governmental Accounting Standards Board (GASB). The PIR process is designed to be independent of the standard-setting process of both FASB and GASB. The FAF review staff reports to the trustees and the FAF president and CEO, but review team members are drawn from experienced FASB and GASB staff to promote a collaborative review process and improve the standard-setting process.
More information on the PIR process can be found on the FAF’s Web site. Those who would like to participate in PIR surveys can register there.