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FASB Won't Re-Open FIN 48 After FAF Review

Tammy Whitehouse | March 20, 2012

A recent review of accounting rules for uncertain tax positions found that, while there was some room for improvement, the rules are working well enough and the Financial Accounting Standards Board will not undertake any changes to those rules but will consider the review's findings in future standard setting.

In a letter responding to the review, FASB Chairman Leslie Seidman said the Financial Accounting Foundations' post-implementation review for FASB Interpretation No. 48: Accounting for Uncertainty in Income Taxes, or FIN 48, revealed some helpful recommendations for improving the standard-setting process. However, it did not reveal any flaws in the standard itself that would indicate the board should re-open the standard to new changes, she said.

FAF recently presented FASB with the results of its first post-implementation review of a FASB standard. FIN 48, now codified in the Accounting Standards Codification under Topic 740 Income Taxes, was adopted in 2006 to require companies to provide more information on where financial statements rely on tax positions that might not hold up under tax examination or litigation. The review concluded uncertain tax positions are recognized and measured more consistently under FIN 48, but not necessarily more comparably because measurements are so reliant on judgment and tax code complexities. The review also made some recommendations for improvements to the standard-setting process, including getting more user input early in the process, providing more discussion about the need and rationale for a given standard, and better addressing costs and benefits.

In a written response to FAF's review, FASB says it lined up the review findings against the board's rules for procedure, which provides criteria for when to re-examine an accounting standard. Under those criteria, the board would take up corrective standard-setting if there is evidence that the board did not adequately consider relevant information when setting the standard initially, leading to a standard that doesn't provide useful information, that is overly burdensome, or that doesn't fit the current circumstances.

The FAF review made no findings that rose to that level of concern, Seidman said in her letter to the FAF committee that performed the review. “Because the findings in the report indicate that overall, FIN 48 has improved the consistency, comparability and relevance of information about uncertain tax positions, and that those benefits outweigh the related costs, the FASB does not plan to undertake a separate project to review FIN 48 at this time,” he wrote. “However, the FASB will consider the findings that are technical in nature in future efforts to simplify our standards, converge them with International Financial Reporting Standards, or both.”

FAF is targeting its next accounting standard review toward business combinations and operating segments, examining FASB Statement No. 141R Business Combinations and FASB Statement No. 131 Disclosures about Segments of an Enterprise and Related Information.