Post-Implementation Review of FIN 48

By Scott F. Guertin, CPA, Boston

Editor: Kevin D. Anderson, CPA, J.D.

Tax Accounting

In January 2012, the Financial Accounting Foundation (FAF) issued its Post-Implementation Review (PIR) Report on FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes. FAF was organized in 1972 and is the independent, private-sector organization responsible for:

  • Establishing and improving financial accounting and reporting standards;
  • Educating constituents about those standards;
  • The oversight, administration, and finances of its standard-setting boards, FASB and GASB, and their respective advisory councils;
  • Selecting the members of the standard-setting boards and advisory councils; and
  • Protecting the independence and integrity of the standard-setting process.

The PIR is a new process designed to help the trustees of FAF with their ongoing efforts to evaluate the effectiveness of accounting standards as well as the standard-setting process. The trustees of FAF selected FASB Interpretation No. (FIN) 48 (now codified in Accounting Standards Codification Topic 740, Income Taxes) to test the initial PIR procedures and modify them, as needed, to make them operational. The objectives of the PIR process are to improve standard setting, in part, through a robust, independent, and credible process.

FIN 48 PIR Objectives

FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and it also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The interpretation was intended to reduce perceived inconsistencies in applying accounting rules to income tax contingencies. According to FAF, the objectives of the PIR team’s review of FIN 48 were:

  1. To determine whether FIN 48 is accomplishing its stated purpose;
  2. To evaluate FIN 48’s implementation and continuing compliance costs and related benefits; and
  3. To provide recommendations to improve FASB’s standard-setting process.
PIR Procedures

The PIR team’s procedures included reviewing FASB’s historical files, conducting stakeholder surveys and questionnaires, reviewing academic publications, reviewing footnote disclosures and other public information for selected public companies, and interviewing stakeholders.

Surveys and questionnaires were sent out to the principal stakeholder groups during the summer of 2011. Responses to the questionnaire were received from financial statement users and preparers, accounting practitioners, preparer organizations, and the largest accounting firms. The questionnaire contained 34 questions that addressed the range of experiences and views of these organizations’ members and professionals.

Post-Implementation Review Questionnaire

The questionnaire was sent to BDO USA LLP and the other constituents and dealt with various aspects of FIN 48. Broadly defined, those aspects dealt with:

  • The amount of liability accrued versus the amount settled and the reason for the difference.
  • Differences in amounts accrued pre- and post-FIN 48.
  • Whether the aspects of FIN 48 are understandable.
  • Costs associated with implementation and maintenance of FIN 48.
  • Impact on financial statement audits and on overall tax strategies.
  • Concern over providing a tax audit “road map” for tax authorities and the impact on tax authority audits.

PIR Indications

The PIR review report stated that the review team’s research indicated preparers and practitioners think that the reported liabilities are larger than the settled amounts based on application of the technical rules of the standard. It also indicated that preparers generally understand FIN 48’s provisions; however, due to the judgment required to evaluate a tax position, applying FIN 48 can be difficult.

The review also showed that preparers and practitioners sought, and continue to seek, post-issuance guidance to apply FIN 48’s provisions, particularly its initial recognition, measurement, and disclosure provisions. Preparers and practitioners who responded to the review questionnaire raised concerns that FIN 48 disclosures reveal sensitive information to taxing authorities, particularly when an entity has limited uncertain income tax positions, which could lead to ambiguous disclosures.

PIR Conclusions

The report’s summary of the overall conclusions includes the following points:

  • More information about income tax uncertainties is reported using FIN 48’s provisions when compared with the prior accounting guidance.
  • Uncertain income tax positions are recognized and measured more consistently using FIN 48’s guidance when compared with the prior accounting guidance.
  • Reported information about income tax uncertainties is more relevant since adoption of FIN 48.
  • On balance, the benefits of FIN 48’s improved consistency and reporting of income tax uncertainty information outweigh its costs.

PIR Recommended Standard-Setting Process Improvements

The first recommendation made by the PIR team was that FASB continue its efforts to improve user input in the agenda and early deliberation phases to evaluate alternatives addressing user needs. This was in response to the team’s observation that there was minimal FASB outreach to financial statement users to determine users’ concerns about such matters during those phases of the development of FIN 48.

There were three additional recommendations made:

[T]he FASB [should] include in each standard a thorough discussion about the need for new financial reporting guidance and the benchmark characteristics of useful financial information considered. . . . The discussion should explain how, from financial statement users’ perspectives, the new guidance meets the qualitative characteristics of useful financial information (relevance and faithful representation) and their enhancing characteristics (comparability, verifiability, timeliness, and understandability). If the FASB adopts one principle from a number of acceptable alternatives, the standard should explain how the principle selected best meets users’ needs. . . .

The FASB should clearly describe its processes for evaluating a new standard’s cost-benefit relationship. . . . [T]he FASB [should] include in each standard a thorough discussion of the new guidance’s benefits and beneficiaries, the associated costs to affected principal stakeholders, and how benefits and costs are evaluated and assessed. The discussion should explain cost and benefit elements considered, including the effects on operating practices. . . .

[T]he FASB [should] follow consistently its established policies and procedures related to re-exposing all or part of a proposed standard. [PIR, p. 11]


Although FIN 48 has led to improved consistency in reporting of uncertain tax positions, significant management judgment is still required in the ultimate determination of recorded amounts, so comparability of information about these positions across companies and other reporting entities may not be enhanced. Disclosure of uncertain tax positions may be somewhat ambiguous in an effort to balance compliance with the standard, while at the same time avoiding detailing tax planning strategies for tax authorities. With the advent of IRS-required disclosure about uncertain tax positions on Schedule UTP, Uncertain Tax Position Statement, financial statement disclosure is likely to continue to evolve. Based on the results of the FIN 48 review and future post-implementation reviews, it is also likely that FASB will alter its standard-setting process.


Kevin Anderson is a partner, National Tax Services, with BDO USA LLP, in Bethesda, Md.

For additional information about these items, contact Mr. Anderson at 301-634-0222 or

Unless otherwise noted, contributors are members of or associated with BDO USA LLP.

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