The Financial Accounting Foundation (FAF) has conducted its first post-implementation review of an accounting standard, starting with FIN 48, Accounting for Uncertainty in Income Tax Positions. No surprise that the FAF found that the standard generally achieved its purpose. What was surprising was that the FAF acknowledged the standard needs some improvement.
The report, which was compiled by an independent committee appointed by the FAF Board of Trustees, found that consistently applying FIN 48’s guidance may not increase the comparability of information as management’s judgments and the increasing complexity of the tax code. Management has to assess each tax position separately on its technical merits and as a result different judgments may result in different reported outcomes, even for similar uncertain tax positions.
The committee found that the information FIN 48 provides “may not be predictive or confirmatory of future cash flows because FIN 48 employs a benefit-recognition approach, not the best-estimate approach for liabilities to be settled.” Overall, the report found that the benefits of FIN 48’s improved consistency and reporting of uncertain tax positions outweigh its costs.
It is unclear as to what changes this review will have on the current standard. The FASB will examine the post-implementation review report and provide a written response in the next few weeks.
The FAF has also been receiving a steady stream of input on its proposal for a Private Company Standards Improvement Council. More than 6,200 CPAs, lenders, investors, other financial statement users, private companies and small business owners sent comment letters to the FAF in response to its proposal for changing private company financial reporting. The comment letters urged FAF to accept the Blue Ribbon Panel on Standard Setting for Private Companies’ recommendation that an independent, authoritative standard-setting board be set up to modify U.S. GAAP, where warranted, for private companies. In response, the FAF has scheduled roundtable discussions in various cities through March 1 to gain further input from stakeholders.
As always, Hertzbach will keep you updated on any changes.