FASB Concludes FIN 48 Could Be Better

A review team from the Financial Accounting Foundation (FAF) concluded that Financial Accounting Standards Board (FASB) Interpretation No. 48, or FIN 48, is “generally working as intended” but could still use some improvement in order to better meet the needs of various stakeholders, according to a foundation press release. FIN 48, which concerns itself with how people can account for uncertain income tax positions, was implemented in June 2006 in order to, according to the press release, reduce diversity in practice in recognizing, measuring, and reporting uncertainties relating to income tax positions. Since then, according to the FAF, the interpretation has resulted in a larger amount of useful information and greater consistency in how that information is reported. However, preparers remain concerned that judgments involved in accounting for income tax uncertainties still can result in incomparable information that may not represent the amounts expected to be paid, as difficulties can arise when judgments are applied to a complex and often vague tax code and practices. Further, some practitioners, especially smaller ones, have seen increased costs through additional audit fees, external legal and accounting expertise, and documenting existing tax positions.

The FAF drew its conclusions as part of its first post-implementation review, where it examined the effectiveness of the interpretation in accomplishing its stated goals. The FAF trustees are not responsible for recommending standard-setting action, which must be done independently by the FASB, though it did recommend changes to the standard-setting process itself. Namely, it said that the FASB should:
 

• Continue its efforts to improve user input in the agenda and early deliberation phases to evaluate alternatives addressing user needs
• Include in each standard a thorough discussion about the need for new financial reporting guidance and the benchmark characteristics of useful financial information considered
• Include in each standard a thorough discussion about the new guidance’s benefits and beneficiaries, the associated costs to affected principal stakeholders, and how benefits and costs are evaluated and assessed; and
•  Follow consistently its established policies and procedures related to re-exposing all or part of a proposed standard.