FIN 48: Countdown for companies reporting under US GAAP

PwC is helping affected companies to understand what FIN 48 means for them and to implement measures to get them ready for when the new rules begin to take effect.

Many US companies are in the process of publishing their 2007 quarter one results which include the first round of FIN 48 disclosures. There remain strong underlying themes on the concerns and difficulties that the new interpretation has led to. These include the transfer pricing arena, disclosure requirements surrounding EU court cases, tax authority attitudes and the general disclosure requirement themselves.

FIN 48 affects all companies reporting under US GAAP (subsidiaries of US companies and UK companies with a US listing or US listed debt) for accounting periods commencing after 15 December 2006. FIN 48 has been issued as a result of the perceived diversity of how companies have accounted for uncertain tax positions under US GAAP in the past. The key aims of the interpretation are to provide:

• greater comparability;
• reduced flexibility for manipulation; and
• increased transparency of tax risks

Why should companies be concerned?

There is greater disclosure to the tax authorities on what the company believes is going to be the likely outcome of uncertain tax positions. There are also indications of tax authorities around the world considering their positions in relation to companies’ tax accrual working papers and potentially seeking the ability to re-examining previous settled enquiries. Companies must also consider the balance that has to be managed between preparing FIN 48 documentation in support of transfer pricing positions adopted that satisfy the external auditor, for example, and to ensure it is consistent with the tax filing position of the company.

Affected companies need to consider:

• Whether the company has the necessary resource and information collection and management processes to implement and comply with FIN 48 in a timely manner.
• How to develop a strategy that will enable them to sustain the required inventory of uncertain tax positions.
• The strength of tax-related internal controls and whether they need to be developed to take FIN 48 into account.
• Current tax policies and disclosure and the extent of the change required to enable adoption.
• The impact of adoption on key financial measures and what communication may be needed with relevant stakeholders (analysts or shareholders, for example).
• Whether there is any process that might usefully be considered to expedite the resolution of open issues.

PwC is helping affected companies to understand what FIN 48 means for them and to implement measures to get them ready for when the new rules begin to take effect.