FIN 48: accounting and auditing implications

In June 2006, the FASB released FASB Interpretation 48 (FIN 48), Accounting for Uncertainty in Income Taxes. FIN 48 amends Statement of Financial Accounting Standards 109 and specifies the accounting and reporting requirements for the uncertainty in tax positions an entity may take. FIN 48 requires any entity subject to income tax to apply a two-step analysis to uncertain tax positions:apply a recognition threshold to determine whether an uncertain tax position should be recognized within an entity's financial statements and determine the amount of the uncertain tax position to be reported in company financial statements. While numerous tax issues could trigger the application of FIN 48, such as tax-sheltered investments, other less obvious situations may also create uncertainty in tax positions. FIN 48 requires auditors to consider issues with regard to identifying and evaluating possible tax uncertainties, audit documentation, and materiality that follow generally accepted auditing standards, while providing quality service to companies with possible FIN 48 issues.