Financial Reporting Alert 08-5, FASB Expands the Scope of the Interpretation 48 Deferral
January 23, 2008
Today, the FASB held a meeting to discuss proposed Staff Position No. FIN 48-b, “Effective Date of FASB Interpretation No. 48 for Nonpublic Enterprises,” which was issued last month for public comment. The proposed FSP would defer the effective date of Interpretation 481 for nonpublic enterprises and has raised many questions about which enterprises are eligible for the deferral. At today’s meeting, the FASB decided on the scope of the final FSP and its effective date. Enterprises cannot apply the deferral until the final FSP is posted to the FASB’s Web site, which is expected in early February 2008.
Scope of Deferral
The FASB decided that nonpublic enterprises would be eligible for the deferral unless :
the nonpublic enterprise issued a full set of annual financial statements incorporating the recognition, measurement, and disclosure requirements of Interpretation 48, or
the nonpublic enterprise is a subsidiary of a public enterprise.2
The definition of public and nonpublic enterprise is based on the guidance in paragraph 289 of FASB Statement No. 109, Accounting for Income Taxes.
The FASB’s decision significantly expands the scope of the proposed FSP and therefore the number of enterprises that will be eligible for the deferral. As a result of the decision, nonpublic enterprises that have not yet issued a full set of annual financial statements that reflect the adoption of Interpretation 48 and that include the annual Interpretation 48 disclosures would be eligible for the deferral (assuming the enterprise meets the definition of nonpublic enterprise in Statement 109 and is not a subsidiary of a public enterprise). The annual disclosures are outlined in paragraph 21 of Interpretation 48 and include the tabular reconciliation of the total amounts of unrecognized tax benefits and the “early warning disclosure.”
For example, a nonpublic enterprise would be eligible for the deferral (assuming the enterprise meets the definition of nonpublic enterprise in Statement 109 and is not a subsidiary of a public company) even if:
the enterprise previously issued interim financial statements or financial information to its lenders in accordance its debt covenant requirements, or
the enterprise (fund) previously issued net asset values to third parties.
The FASB decided to modify the deferral period in the proposed FSP to require the adoption of Interpretation 48 for annual periods beginning after December 15, 2007. Therefore, calendar-year-end nonpublic enterprises that are eligible for the deferral are required to adopt Interpretation 48 as of January 1, 2008, but are not required to reflect that adoption in their financial statements until they issue their annual financial statements for the year ending December 31, 2008. Nonpublic enterprises may still choose to early adopt Interpretation 48.
The FASB also decided not to expand the scope of the deferral to nonpublic enterprises applying Staff Position No. FAS 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction.” That is, FSP FAS 13-2 is still effective for fiscal years beginning after December 15, 2006.
1 FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes.
2 Informal discussions with the FASB staff have indicated that the deferral would apply to U.S. subsidiaries of a foreign public company that neither reports under nor reconciles to U.S. GAAP.