The Financial Accounting Standards Board has decided against undertaking a separate project to revise a controversial standard to account for uncertainty in income taxes.
FASB issued a response Tuesday to a post-implementation review of FASB Interpretation No. 48, or FIN 48, “Accounting for Uncertainty in Income Taxes,” by FASB’s parent organization, the Financial Accounting Foundation. The FAF’s report on FIN 48 was the first one it has conducted on how well an accounting standard has worked in practice (see Accounting Standard for Uncertain Income Tax Positions Needs Tweaking).
The report found that the 2006 standard generally meets its goal of increasing the relevance and comparability in reporting information about income tax uncertainties. But the report, which was compiled by an independent committee appointed by the FAF board of trustees, also found from interviews with various stakeholders that consistently applying FIN 48’s guidance may not increase the comparability of information about income tax uncertainties across companies and other reporting entities.
In response, FASB said it would not carry out a separate project to revise the standard, but there may be changes in conjunction with its larger goal of harmonizing U.S. GAAP with International Financial Reporting Standards, in conjunction with the International Accounting Standards Board, particularly for private companies.
“The FASB is pleased with the PIR team’s finding that FIN 48 is resulting in more consistent and useful information for investors and other users of financial statements,” said FASB chair Leslie F. Seidman in a statement. “The FASB welcomes the PIR team’s recommendations to continue to improve our processes, and we are taking steps to make enhancements in those areas. While the FASB does not plan to undertake a separate project to review FIN 48 at this time, the board plans to consider the technical findings in future efforts to simplify our standards, converge them with International Financial Reporting Standards, or both.”
In its response, FASB noted that the post-implementation review report findings affirm the overall effectiveness of FIN 48. Feedback from stakeholders indicated that FIN 48 has resulted in more consistent recognition and measurement of uncertain tax positions and more relevant reported information about income tax uncertainties. Most preparers said they did not incur significant implementation and compliance costs.
FASB is also backing the review team’s recommendations for improving the standard-setting process, including suggestions that FASB involve investors earlier in the process, more completely describe FASB’s cost-benefit analysis, and elaborate on how the board applies its criteria for re-exposing decisions reached in re-deliberations.
FASB added, however, that the criteria for a review or reconsideration of FIN 48 have not been met, based on the criteria established in the FASB Rules of Procedure. But FASB plans to consider technical findings in the report during a review of whether simplifications or modifications in U.S. GAAP are warranted for private companies and in its analysis of the remaining differences between U.S. GAAP and IFRS, in particular, IAS 12, “Income Taxes.”
“With this response from the FASB, we complete our first Post-Implementation Review,” said FAF chairman John J. Brennan. “The trustees believe that this process provides critically important feedback in the standard-setting process and we’re pleased with the overall result. We’ll take what we’ve learned from this first effort and use it to improve the process as we move forward with our next accounting standard reviews.”
FASB’s full response to the FIN 48 PIR Report is available on FASB's Web site.
FASB issued FIN 48 in June 2006 to reduce diversity in practice in recognizing, measuring, and reporting uncertainties relating to income tax positions. The review of FIN 48 (codified in Accounting Standards Codification Topic 740, Incomes Taxes), was undertaken by an independent FAF team working under the oversight of the FAF Board of Trustees. The team’s formal report is available on the FAF's Web site.
The PIR process is designed to be independent of the standard-setting process of FASB and the Governmental Accounting Standards Board, which the FAF also oversees. The FAF review staff reports to the trustees and FAF president, but members are drawn from experienced FASB and GASB staff to promote a collaborative review process aimed at improving the standard-setting process. The review staff tested the initial review process by selecting one FASB and one GASB standard, with the FIN 48 standard as the first test.
The FAF plans to do its next post-implementation reviews of business combinations, reportable operating segments, deposits, investments, and repurchase agreements (see FAF Plans Post-Implementation Reviews of More Accounting Standards).
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