CFOs of private companies should soon get clearer guidance on how to report their companies’ income taxes. The Private Company Council (PCC), created in May by the Financial Accounting Foundation (FAF), plans to make income-tax uncertainty one of the first items on its agenda by tackling Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.”
FIN 48, which dates back to 2006, received a barrage of criticism from private companies. Before FIN 48 was issued, companies’ tax positions were often recognized in financial statements on a “best estimate” basis. FIN 48 provided more-rigid requirements that would make things easier for tax regulators by helping them determine, for instance, whether companies have engaged in illegal tax-sheltered transactions. Many complained that the rule effectively forced companies to provide a “road map” for tax audits.
The PCC will look at tax uncertainty right out of the gate, said Billy Atkinson, newly appointed chairman of the group, on a recent press call. Formed by the FAF (FASB’s parent organization) to improve private companies’ financial reporting, the council is charged, first, with determining whether exceptions or changes to existing nongovernmental U.S. generally accepted accounting principles are necessary to address the needs of users of private-company financial statements. Second, the PCC will advise FASB on private-company treatment for items on FASB’s technical agenda.
Although the PCC is separate from FASB, it will retain close ties to the standards board. Daryl Buck, a FASB member, will serve as the official liaison to the PCC, which will replace FASB’s Private Company Financial Reporting Committee, created in 2006. “We will not formally disband the group until year-end, just to ensure that FASB has the input that it needs as the PCC is getting up and running,” said Terri Polley, president and CEO of FAF, on the call.
For its part, FASB, which has been criticized for its approach to private companies by the American Institute of Certified Public Accountants, has a lot invested in the success of the PCC and its mission. The board “will provide the necessary support in terms of staffing and other resources so that we together can be as effective as possible in achieving our mission,” says FASB chairman Leslie Seidman.