Fin 48



Introduction

Since the collapse of Enron and the issuance of the Sarbanes-Oxley Act in 2002, it is clear that the Financial Accounting Standards Board (FASB) is trying to make the accounting for entities a more transparent matter (Arlinghaus, 2007). In addressing this matter of transparency, the Financial Accounting Standards Board (FASB) issued interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109(FIN 48) on July 13, 2006. In accordance with FASB Statement No. 109, Accounting for Income Taxes(SFAS 109), FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements. FIN 48 strives to accomplish the important objective of transparency through its recognition threshold and measurement attributes. FIN 48 requires entities that use U.S. Generally Accepted Accounting Principles (GAAP) to apply a specific level of measurement to tax positions in determining whether some or all of the benefits of that position can be recognized in the financial statements. Effective for fiscal years beginning after December 15, 2006, FIN also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition (AICPA, 2006). Concerning the matter of disclosure, FIN 48 contains significant disclosure requirements that include identifying positions for which it is reasonably possible that unrecognized tax benefits will increase or decrease in the twelve months following the financial reporting date (Beecy, 2007).

When FIN 48 was introduced, many professionals suggested that it would provide a roadmap for the Internal Revenue Service (IRS) to audit corporations and other entities that keep financials in accordance with U.S. GAAP (Beecy, 2007). FIN 48 has given taxing authorities the ability to get a more detailed look at the method in which an entity accounts for tax assets and liabilities. Also,...