Sunday, December 17, 2006

New Accounting Rule Begins

The Financial Standards Board’s Interpretation 48 Accounting for Uncertainty in Income Taxes becomes effective December 15, 2006. This may dramatically affect future USCF financial reporting and decision-making. A lot of the decisions that managers throughout the economy make have uncertain tax consequences even in non-profit operations. It can’t be helped. Government regulators can’t anticipate every conceivable thing that humans can do. So, a whole lot of the decisions that managers make are questionable. That’s life and it’s unavoidable. So what are the new rules?

Here’s how The American Institute of Certified Public Accountants summed them:

“Tax positions can only be recognized if they meet a “more-likely-than-not” threshold of being realized if challenged by a taxing authority with full knowledge of the facts. If this level of certainty is not met, no tax benefit can be booked, and even if it is met, only the amount which has a greater than 50% change of being sustained may be booked. Specific financial statement disclosures are required with respect to uncertain tax positions.”

This link is from the American Institute of Certified Public Accountant’s web site.

The challenge for next year’s managers will be to tread the path between (1) being too fearful of the IRS and other government agencies and thus not making the best decisions for their owners/stockholders and (2) generating problems due to under-booking benefits and footnote disclosures that cause controversy.

The Financial Accounting Standards Board’s summary of their pronouncement is here.