Resources

• Articles
• Legislative Updates
• Economic Recovery Services
• Client Newsletter
• Payroll Tax Guidelines
• 2009-2010 Tax Planning Guide

Non-Public Companies Granted Relief from Controversial Tax Accounting Rule

In July 2006, the Financial Accounting Standards Board imposed yet another set of controversial rules on non-public companies, their constituents and auditors. FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, was issued as an interpretation of FASB Statement 109, Accounting for Income Taxes, in an effort to improve the consistency of recognition thresholds and measurements for uncertain tax positions. While the goal of increased relevancy and comparability of financial reporting relating to uncertainty in income taxes is important, many non-public companies determined that additional time is necessary to understand the impacts of FIN 48 on pass-through entities and to understand how the rule’s requirements enhance the usefulness of the disclosure requirements.

In recent years, non-public companies have continued to struggle to implement the complex requirements of accounting rules such as Statement 123R, Share Based Compensation, and Statement 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. Pronouncements such as these are often seen by non-public companies as improving the quality of financial reporting by public companies for the users of such information, but providing little utility for the users of private company information.

In March 2007, the Private Company Financial Reporting Committee announced its founding membership and charged them with providing further improvements to the FASB’s current standard-setting process to better meet the financial reporting needs of private companies and the users of their financial statements. The primary objective of the Committee is to provide recommendations to the FASB that will help the Board determine whether and where there should be specific differences in prospective and existing accounting standards for private companies.

In September 2007, the Committee submitted a recommendation to the FASB to delay the implementation of FIN 48 for private companies for the reasons stated earlier. In what should be considered a “win” for this committee, on January 8, 2008, the FASB issued for exposure a Staff Position which would grant a one-year deferral of FIN 48 to allow additional time for private companies to become aware of the implications of the rule and address the issues relevant to private company financial statement users. The Committee asserted that many private companies do not have the resources to follow FASB proceedings and they often learn about new requirements like FIN 48 at continuing education sessions after the effective date. In addition, best practices are not in place as examples for private companies. The Committee also believed that because FASB Statement 109 does not specifically address pass-through entities, many private company financial statement preparers and their CPA practitioners are unaccustomed to accounting for income taxes and are unaware of the implications of FIN 48. This lack of awareness may ultimately result in less than ideal accounting consistency, comparability and financial reporting quality. The FASB approved the position in February 2008.

It is encouraging that the Private Company Financial Reporting Committee has had an early impact on the FASB’s standard setting process. Continued committee involvement in the process will be critical in providing recommendations to the FASB that will help the FASB determine whether and where there should be differences in prospective and existing accounting standards for private companies.

For more information, contact: F. Jeffrey Kovacs, Accounting and Audit Shareholder, at 412.281.2545 or jkovacs@alpern.com.

Comments or Questions