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Fasb Fin 48 Disclosures: Evidence On User Perceptions

Author

Listed:
  • Thomas Smith
  • Adrian Valencia
  • Ara Volkan
  • Jordin Vorisek

Abstract

This study analyzes how financial statement users (users) interpret disclosures related to Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). While past research has examined the decision usefulness of various aspects of FIN 48 balances reported in the financial statements, there are no studies that examine the impact that FIN 48 disclosures have on the financial decisions the users make. This study aims to fill this gap by conducting an experiment to find evidence that users find FIN 48 disclosures useful in evaluating the conduct of a firm’s management. Specifically, the study examines and finds that users regard FIN 48 disclosures as more of an indication that the management is enhancing the transparency of the financial statement information provided rather than using aggressive tax strategies. The finding of this study is important to standard setters as it suggests that users are interpreting the disclosures consistent with the intention of the FASB. This finding is also important to companies who may be hesitant to increase the robustness of FIN 48 disclosures as this study suggests that the outcome of such practices would likely improve the perception of the company in the users’ eyes

Suggested Citation

  • Thomas Smith & Adrian Valencia & Ara Volkan & Jordin Vorisek, 2023. "Fasb Fin 48 Disclosures: Evidence On User Perceptions," Accounting & Taxation, The Institute for Business and Finance Research, vol. 15(1), pages 27-41.
    • Handle: RePEc:ibf:acttax:v:15:y:2023:i:1:p:27-41
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    References listed on IDEAS

    as
    1. Cristi A. Gleason & Lillian F. Mills & Michelle L. Nessa, 2018. "Does FIN 48 Improve Firms' Estimates of Tax Reserves?," Contemporary Accounting Research, John Wiley & Sons, vol. 35(3), pages 1395-1429, September.
    2. Sanjay Gupta & Rick C. Laux & Daniel P. Lynch, 2016. "Do Firms Use Tax Reserves to Meet Analysts’ Forecasts? Evidence from the Pre†and Post†FIN 48 Periods," Contemporary Accounting Research, John Wiley & Sons, vol. 33(3), pages 1044-1074, September.
    3. Borkowski, Susan C. & Gaffney, Mary Anne, 2021. "FIN 48 and the tax aggressive behaviors of transnational corporations: A decade later," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 42(C).
    4. Blouin, Jennifer & Gleason, Cristi & Mills, Lillian & Sikes, Stephanie, 2007. "What Can We Learn About Uncertain Tax Benefits From FIN 48?," National Tax Journal, National Tax Association;National Tax Journal, vol. 60(3), pages 521-535, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Uncertain Tax Positions; Educated Non-Professional Investors; Information Usefulness; Financial Statement Transparency; Aggressive Tax Strategies;
    All these keywords.

    JEL classification:

    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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