FIN 48-2: FASB upholds FIN 48 for public companies; non-public entities may defer
The Financial Accounting Standards Board (FASB) has decided to allow nonpublic entities to defer implementation of FIN 48 to fiscal years beginning after December 15, 2007. To address this issue, the Financial Accounting Standards Board has issued FASB Staff Position (FSP) FIN 48-2, Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises. The final FSP incorporates changes made to the original Exposure Draft, and defers the effective date of FASB Interpretation 48, Accounting for Income Taxes, for certain nonpublic enterprises-including nonpublic not-for-profit organizations-to the annual financial statements for fiscal years beginning after December 15, 2007.
At the November 7, 2007 meeting, the board directed its staff to develop a formal extension for nonpublic entities in response to a recommendation of the Private Company Financial Reporting Committee (PCFRC), which said many nonpublic entities, in particular nonpublic pass-through entities, required more time to study and apply the provisions of Interpretation 48.
The Internal Revenue Service (IRS) has offered assistance in resolving uncertain positions on an expedited basis to companies preparing to implement FIN 48 through its Large and Medium-Sized Business department (LMSB) initiative. The expedited procedures were effective through March 31, 2007.
The IRS has also published FIN 48 policy and field guidance documents pertaining to tax accrual workpapers.
FASB says that the use of Interpretation 48 "increases the relevancy and comparability of financial reporting by clarifying the way companies account for uncertainty in income taxes. It makes recognition and measurement more consistent, as well as offering clear criteria for subsequently recognizing, derecognizing, and measuring such tax positions for financial statement purposes."
Accounting professionals at McGladrey & Pullen, LLP provided the following information about this issue:
FIN 48 deferral now effective
The much anticipated deferral of the effective date of FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes, for certain nonpublic entities was finalized on February 1, 2008 when Financial Accounting Standards Board (FASB) Staff Position (FSP) FIN 48-2, Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises, was issued. Nonpublic enterprises that have not issued a full set of U.S. GAAP annual financial statements incorporating the recognition, measurement, and disclosure requirements of FIN 48 are eligible for the deferral. The new effective date of FIN 48 for certain nonpublic enterprises is for annual financial statements for periods beginning after December 15, 2007. Therefore, eligible nonpublic entities will not need to adopt FIN 48 in interim financial statements or financial information (e.g., debt covenant calculations, net asset value, or partner capital statements) issued in 2008. Early adoption is still permitted.
We expect this deferral to affect nearly all stand-alone nonpublic enterprises, including nonpublic banks. Banking regulators recently have indicated that nonpublic banks should follow the guidance of the final FSP even though those regulators had previously required banks to apply FIN 48 in their call reports at the beginning of 2007. The Federal Financial Institutions Examination Council recently posted an update to the call report instructions and a memo on the FIN 48 deferral.
Certain nonpublic enterprises are not eligible for the deferral. Nonpublic consolidated entities of public companies that apply U.S. GAAP are not eligible for the deferral for their stand-alone financial statements. However, we have clarified with the FASB staff that a nonpublic company that is wholly- or majority-owned by a publicly traded company and that is included in the public company’s consolidated financial statements at fair value (for example, a private company owned by a publicly traded private equity group) is eligible for the deferral for its stand-alone financial statements. U.S. subsidiaries of a foreign public company that applies U.S. GAAP are also not eligible for the deferral.
Conduit bond obligors for conduit debt securities that are traded in a public market do not meet the definition of a nonpublic enterprise (as provided in paragraph 289, as amended, of FASB Statement No. 109, Accounting for Income Taxes). Therefore, those conduit bond obligors are not eligible for the deferral. FSP FAS 126-1, Applicability of Certain Disclosure and Interim Reporting Requirements for Obligors for Conduit Debt Securities, issued in October 2006, addresses entities that are included in the definition of a public enterprise.
Nonpublic enterprises should include similar disclosures to those required of public enterprises by SEC Staff Accounting Bulletin (SAB) No. 74, Disclosure of the Impact that Recently Issued Accounting Standards Will Have on the Financial Statements of the Registrant When Adopted in a Future Period. SAB 74 requires that, to the extent new accounting standards have been issued but not yet adopted, an enterprise should discuss the potential effects of adopting the new accounting standard in its financial statements. Therefore, calendar year-end clients that take advantage of the deferral should include the required disclosures in their 2007 financial statements.
A key disclosure of SAB 74 is the affect that adoption of a standard is expected to have on the financial statements unless not known or reasonably estimable. Banks that issued call reports during 2007 that included the affect of applying FIN 48 would, therefore, be expected to include a discussion of the affect that the future adoption of FIN 48 will have on their financial statements. The same is true for any nonpublic enterprise that issued interim financial statements in 2007 that included the accounting required by FIN 48.
You can read the final FSP.
AccountingWEB would like to thank Jay Hanson, partner and national director of accounting, McGladrey & Pullen, LLP, for his assistance with this article.