Tax & Accounting Blog

Did FIN48 Achieve its Purpose? More Likely Than Not

Global Tax Compliance, ONESOURCE, Tax Provision, Transfer Pricing, US Income Tax Compliance January 13, 2012

On January 12, 2012, the Financial Accounting Foundation (FAF) released a Post-Implementation Review Report on FASB Interpretation No. 48 (FIN48/ASC 740-10-50) Accounting for Uncertainty in Income Taxes, commonly referred to as Fin 48.

The general conclusion of the report is that the benefit of the reporting outweighs the costs of providing the information.  With more  information being made available to investors, the information is more uniform than under prior guidance. Recommendations in the report stress the need to improve communication and input from users, and offer guidance on how the principal selected from the various alternatives best meets the users needs.

These findings are not necessarily ground-breaking. Apparently, investors appreciate any detail that they feel helps them better value a company’s current & future state, tax preparers believe the cost is not worth the burden, and private companies feel it is their inherent right to be left the heck alone. I think what is more relevant and beneficial to the tax community is what the study embodies.

With IFRS still lurking in the ever not too distant future, perhaps this borrowed time will yield valuable insight for the standard setters to minimize the bumps in the road that everyone fears. While FAS109/ASC740 has had some time to gestate, FIN48/ASC 740-10-50 is still somewhat amoebic in practice with no clearly defined comparable rule set in IFRS. Accountants and tax preparers are essentially asked to make “educated” guesses on potential outcomes of uncertain positions taken on items that in and of themselves embody uncertainty (potentially due to unclear guidance). Putting it that way, I feel enthused and encouraged that they are taking a step back to re-analyze the effectiveness.

Zoom out a bit further; if nothing else this serves as a timely reminder to always take a step back and re-analyze our own efforts and implementations. With every year-end, take a step back to look at where time was spent, what calculations were problematic, and assess the level of comfort in the produced results. If time is spent researching interest rates, consolidating excel based schedules, and running (and re-running) diagnostics or error reports to validate calculation methodology, there is room to improve.

Share your thoughts with us and comment below. Do you feel the benefits of reporting outweigh the costs of providing the information?