June 15, 2008
- In September 2006,
new accounting guidance was provided from the Financial Accounting
Standards Board (FASB) regarding accounting for uncertainty in income taxes. This new accounting guidance is effective for
public companies for periods beginning after December 15, 2006. For private companies, the FASB deferred the
implementation of FIN 48 for periods
beginning after December 15, 2007.
The purpose of FIN 48 is to eliminate diverse
accounting practices and to clarify accounting for uncertainty in income taxes within a
company’s financial statements. Further,
the guidance is intended to improve financial reporting comparability.
Although investment partnerships and hedge
funds may not currently pay taxes, if they issue GAAP financial statements then they still
need to perform the due diligence to analyze the impact of FIN 48 on their financial
statements. The new standard creates
significant implementation considerations and complicated new guidelines for the proper
implementation. Some of the applicable tax
issues include various state taxes, federal and state withholding requirements, and
disclosures related to reportable transactions.
FIN 48 process impacts the following:
Further, FIN 48 involves the following:
Defines what constitutes a tax position;
Determines the unit of account for an
individual tax position;
Introduces a “more-likely-than-not”
recognition threshold;
Provides measurement information for tax
benefit considerations; and
Provides guidance regarding what is an
ultimate settlement with the tax authority for a specific tax matter, among other
considerations.
Additionally, FIN 48 provides guidance on:
De-recognition
Classification
Interest and penalties
Transitional issues
Many public companies are still struggling
with FIN 48 implementation issues, and it is anticipated that many private companies will
either lack the resources for FIN 48 implementation or may not act until it is too late.
Navigating through the complexities of FIN 48
may seem daunting, and independence issues preclude an investment partnerships and hedge
fund’s current auditor from performing this work.
However, Asher has developed a process to easily guide investment
partnerships and hedge funds through FIN 48 from start to final analysis. Asher’s experienced attest and tax
professionals can help your company comprehend FIN 48 implications, formulate a process to
implement compliance, and maintain adherence to the standard. Most funds will need to address the FIN 48
implementation process for their 2008 financial statements.
For information on how your fund should
proceed, please contact Bill Burns or Dave Powers at 215-564-1900.
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