The Financial Accounting Standards Board unanimously voted to move forward in implementing new rules that require public companies to take a more structured approach in reporting uncertain tax positions on their financial statements.
The vote means that the board's Interpretation No. 48, Accounting for Uncertainty in Income Taxes - more commonly referred to as FIN 48 - will be effective for fiscal years beginning after Dec. 15, 2006. Companies will have to give a range of the likely impact in their annual reports for 2006.
Prior to the ruling, companies were given far more latitude in determining what tax benefits could possibly undergo the scrutiny of an audit.
FASB said that tax benefits that had been taken previously would result in adjustments to companies' tax reserves as they start applying the new standard in their first-quarter results.
The seven members of the board said that while they were sympathetic to the concerns of companies and trade groups over the rule's documentation requirement, that wasn't enough to justify a delay in implementation. The effective date for the rule has already been delayed twice, and the board noted that under existing rules, companies should already be documenting uncertain tax positions.
Led by such organizations as the Tax Executives Institute, a number of companies and trade groups had petitioned FASB to delay the rule for one year.
In December, the TEI urged its member companies to send FASB letters petitioning the effective date of implementation, and seeking a one-year deferral to 2008.
The TEI recommended that the letter-writers cite specific examples of issues as they related to their implementing the standard-setter's guidance. The group requested the deferral in order to "allow companies and their independent auditors sufficient time to address the substantive, procedural and documentation challenges posed by the new interpretation."
In addition to the TEI, the standard-setter also received deferral requests and position statements from such organizations as the American Gas Association, the Investment Company Institute, T. Rowe Price and the Edison Electric Institute - each stating the nuances of FIN 48 implementation as it applies to their constituencies.
Regulators, including the Securities and Exchange Commission, hope that the interpretation will help make the tax practices of companies more comparable for investors, by taking a uniform approach to the way that potential benefits from tax positions are booked.
Separately, the standard-setter announced that it will seek input on whether additional and more specific valuation guidance is needed in financial reporting, as well as the process for developing that guidance.
The invitation to comment is available on FASB's Web site, at www.fasb.org. Comments on the issue are due April 15, and the board will hold a public roundtable later that month to discuss the issue.
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