In July 2006, the Financial Accounting Standards Board (the FASB or Board) released an Interpretation that is intended to reduce diversity: Accounting for Uncertainty in Income Taxes (FIN 48 or the Interpretation). Under the Interpretation, companies’ financial statements will reflect expected future tax consequences of uncertain tax positions.
The complexities of tax laws and their interpretations and varied applications have led to diversity in practice regarding uncertain tax positions. Motivated by the divergence in accounting of uncertain tax positions, the FASB released an interpretation to provide guidance. Implementing the guidance will result in a significant shift in many companies' accounting and reporting, and its effects are likely to go well beyond merely changing reported financial statement balances.
The level of implementation effort and the need for process changes should not be underestimated, particularly for multinational companies. This PwC paper is targeted toward helping companies' senior executives and directors understand the high-level requirements of the interpretation, its challenges, and the potential consequences associated with its implementation.