FASB Urged to Delay FIN 48 Effective Date

The Private Company Financial Reporting Committee has asked FASB to delay the effective date of FIN 48 for private companies. In a letter to FASB Chair Robert Herz, the committee said that the effective date should be delayed until guidance is issued on FIN 48’s implications for pass-through entities and until further consideration is given to the usefulness of FIN 48’s disclosure requirements for private companies.

In the committee’s view, the delay will allow for a higher level of awareness and education about FIN 48. In the meantime, the committee intends to conduct further outreach on FIN 48. Among other things, the committee will conduct deeper research into the cost-benefit considerations for private company constituents when adopting FIN 48.

Moreover, the PCFRC believes that many private company financial statement users and preparers are unaware or just becoming aware of the implications of FIN 48. Importantly, this includes a lack of awareness of FIN 48’s applicability to pass-through entities, which applies to many private company structures.

Many private companies do not have the resources to follow FASB proceedings and they often learn about new requirements like FIN 48 at continuing education sessions after the effective date. Similarly, continued the committee, many public companies are still struggling with implementation issues. This means that best practices are not in place as examples for private companies.

FASB Statement No. 109, on accounting for income taxes does not directly address pass-through entities. As a result, many private company financial statement preparers and their CPA practitioners are unaccustomed to accounting for income taxes and are unaware of the implications of FIN 48, despite the attempts of many organizations to create that awareness.

A number of issues arise from FIN 48’s applicability to pass-through entities, including nexus for state income taxes, the level at which taxes are assessed, and the ramifications of FIN 48’s requirements on acquisitions and tax indemnification. FIN 48 may apply to entities to which FASB Statement No. 109 does not apply, noted the committee, adding that pass-through entities will encounter a significant compliance hurdle when assessing the implications of FIN 48.