Providing FIN 48 Services to Attest Client

Aug. 2, 2007
Periodically, the staff of the AICPA Professional Ethics Division issues non-authoritative guidance in the form of “Frequently Asked Questions and Answers” (FAQs) on ethics and independence questions raised by AICPA members.

Recently, the Division's staff was asked whether under Interpretation 101-3—Performance of Nonattest Services, members could assist an attest client in applying FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes, without impairing independence, given the potential complexity of the judgments that the client must make or approve in connection with such services.

Although the degree of complexity involved in the subject matter of any service would be a factor to consider in determining whether a client can meet the requirements of Interpretation 101-3, the Professional Ethics Executive Committee (PEEC) did not believe that the complexities involved in applying FIN 48 would automatically preclude members from assisting clients with its implementation.

The PEEC agreed with the staff that a member could assist an attest client with its application of FIN 48 provided the member is satisfied that the client understands the reasons why a specific tax position does or does not meet the more-likely than not (MLTN) threshold and the basis for the determination of the amount of related unrecognized tax benefits.

In reaching this conclusion, the PEEC noted that the requirement for the client’s designated individual to possess suitable skill, knowledge and/or experience to oversee the services does not require that the individual possess the technical expertise that the member possesses or the ability to perform or re-perform the services.

Accordingly, the Professional Ethics Division is adding the following FAQ to the non-authoritative listing of Bookkeeping FAQs  that appear on the division’s Website.

Question - Would assisting a client in applying FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes, such as identifying potential uncertain tax positions, advising the client whether those tax positions meet the more-likely than not (MLNT) threshold, and calculating the related unrecognized tax benefits impair independence?

Answer - The provision of such services would not impair independence provided the client can make an informed judgment on the results of the member’s services and the other requirements of Interpretation 101-3 are met. In meeting the requirements of Interpretation 101-3, the member may assist the client in understanding why the tax positions do or do not meet the MLTN threshold and the basis for any unrecognized tax benefit so that the client can accept responsibility for the amounts reported and disclosed in the financial statements.