nnのCPA試験の旅 in Hawaii CPA試験の旅 in Hawaii

Hello again!

by nn_77
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FIN 48

After getting through USCPA exam, I often review accounting rules by having an access to this homepage, that introduces all the FAS and other accounting principles issued by FASB.

This morning I was collecting information about FIN 48 (FASB Interpretations Number 48), and FAS 157 (Fair Value Measurements); both are such controversial issues in the United States.
I wonder what an impact it’d give to USCPA exam when they appear on the test.

Below is my study memo regarding FIN 48

【 FIN 48 】
As is well known, Taxable temporary differences result in Deferred Tax Asset / Liability.
But FIN 48 requires companies to report additional tax liabilities when a tax position is likely to be denied by IRS.

The first step: RECOGNITION
The enterprise determines whether it is more likely than not that a tax position will be sustained upon examination.

The second step: MEASUREMENT
A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements.

Only the amount that has passed the above two steps can be recognized in the company’s financial statements, which could be different from the amount in the income tax return (let me remind you that here I’m NOT talking about Deferred Tax effect). And that difference is reported additional liabilities in the company’s balance sheet.

This FIN 48 is controversial and causing lots of debates in US.
The burden of companies increases a lot because they have to doubt their tax position in almost all of items. It’s tough to determine how much likeliness is enough to be considered “more likely than not.”
According to an article from CFO.COM, especially those in retail business are in trouble because they have nexus ( * the definition of “nexus”) in many states which have different tax rules from each other. Thus they have to turn to accountant and auditors and have to pay more consulting fees. And it is doubtful how much users of financial reports can be helped by this FIN 48, when we remember the COST vs. BENEFIT constraint. It is only IRS that welcomes this FIN 48, which makes the financial reports more useful for them when they search for possible tax avoidance cases.

Let's see where the controversy goes from now and what'd be the impact on USCPA exam.
by nn_77 | 2007-10-14 10:50 | >FARE | Comments(4)