 FAS 109
FIN 48
FAS 123 (R)
TPG Alliance
Historically, companies that faced complicated tax issues could simply turn to their outside auditing firm for consultation and advice. However, the 2002 enactment of the Sarbanes-Oxley Act (SOX) drastically limited the amount of assistance that an outside auditing firm can provide to a client.
SOX prohibits auditors from providing certain tax services where the audit firm must maintain independence. SOX was enacted in an attempt to restore confidence in company management following the many scandals that shook the U.S. securities market.
Recently issued FASB statements ( i.e., FAS 109, FIN 48, and FAS 123(R) ) have dramatically increased technical complexity and project workload in accounting for income taxes. FIN 48 implementation for private companies, including partnerships, S corporations and other flow through entities, will now be required for fiscal years starting after December 15, 2007. Many privately held companies have already implemented SOX safeguards to be in compliance for lenders, insurance as well as mergers and acquisitions.
Issues Facing CPAs
- Many CPAs' clients have had to rely on outside assistance from local market competitors in order to perform certain tax services for their clients.
- Many CPAs have lost valuable chargeable hours to market competitors - hours which continue to increase dramatically due to the increasing technical complexity of the rules and more stringent independence standards.
Solution: Tax Projects Group
TPG provides an alternative for clients to provide these services:
- TPG is independent of CPA firms. TPG has no affiliation with the independent auditors or their clients, and does not perform audits or attest services.
- TPG consists of dedicated tax specialists with former Big-4 SEC experience.
- TPG works to assist clients with critical audit and tax service issues while ensuring that they remain in compliance with SOX.
- TPG works with CPAs to potentially gain lost chargeable hours.
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Accounting for income taxes under Financial Accounting Standard (FAS) 109 has become increasingly difficult due to complexities in tax law and expanded financial statement disclosures relating to income taxes. The impact of foreign tax credits, mergers and acquisitions and valuation allowance analysis are just a few of the complications that a company must consider in determining its current projected effective tax rate.
As a result of recent actions of the Public Company Accounting Oversight Board, auditors are placing more emphasis on income taxes and look to their clients to provide increasing amounts of analysis and documentation. What used to be a time consuming annual exercise to prepare FAS 109 calculations and footnote disclosures is now becoming a quarterly event. In addition, the Financial Statement Accounting Board has recently issued a significant proposed interpretation under FAS 109, Accounting for Uncertain Tax Positions. This proposed interpretation will likely have a far-reaching impact on financial statement reporting.
Proper and timely preparation of a company’s quarterly and annual FAS 109 calculation, presentation and footnote disclosure requires personnel with strong technical skills in tax and financial areas. Many companies find themselves overburdened as they devote significant resources to Sarbanes-Oxley and other compliance requirements. Unfortunately, at a time when company personnel need more assistance in the FAS 109 area, Sarbanes-Oxley further restricts the ability to utilize their audit firm’s personnel, including tax professionals.
Tax Projects Group FAS 109 Services can support your compliance and planning. Our team provides the necessary tax and financial expertise to manage all or your FAS 109 needs.
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In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 is the most significant change to accounting for income taxes since the adoption of the liability approach, which creates a single model to address uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure, and transition. In addition, FIN 48 clearly scopes out income taxes from Financial Accounting Standards Board Statement No. 5, Accounting for Contingencies.
FIN 48 is effective in fiscal years beginning after December 15, 2006. The provisions of FIN 48 are to be applied to all tax positions upon initial adoption, with the cumulative effect adjustment reported as an adjustment to the opening balance of retained earnings.
FIN 48 implementation for private companies, including partnerships, S corporations and other flow through entities, will now be required for fiscal years starting after December 15, 2007.
Tax Projects Group can assist companies with respect to all aspects of initial compliance with FIN 48. Our team of experts can work with you to develop and implement an effective action plan.
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On April 14, 2005, the Securities and Exchange Commission (SEC) announced the adoption of a rule that defers the required effective date of FASB Statement 123 (revised 2004), Share-Based Payment. The SEC rule provides that Statement 123(R) is now effective for registrants as of the beginning of the first fiscal year beginning after June 15, 2005, instead of at the beginning of the first quarter after June 15, 2005 (as prescribed originally by the FASB Statement). Therefore, the required effective date of Statement 123(R) for calendar year-end public companies is January 1, 2006 instead of July 1, 2005. Both public and private companies should understand the complex issues associated with the adoption of 123(R), such as accounting for income taxes and refining valuation assumptions.
Tax Projects Group assists clients in assessing the implication and implementation of FAS 123(R) with respect to deferred taxes and accounting for income taxes. Our team of expertise can work with clients to develop and implement an effective action plan.
By joining the TPG Alliance, CPA firms have a unique opportunity to regain chargeable hours lost due to SOX independence issues. CPA firms may become preferred partners with TPG allowing them to perform certain SEC Tax Services to non-related clients throughout the U.S. For more information contact TPG's Managing Partner, Brian Pluckhan, at:
brian.pluckhan@taxprojectsgroup.com.
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