The AICPA Professional Ethics Division and Professional Ethics Executive Committee (PEEC) recently received an inquiry regarding application of FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes. Their response and supplementary “FAQ” (Frequently Asked Question) document regarding the relationship between independence and FIN 48 follows.

Q: Under Interpretation 101-3 – Performance of Nonattest Services, of the Code of Professional Conduct, can a member assist an attest client in applying FIN 48 without impairing independence, given the potential complexity of the judgments that the client must make or approve in connection with such services?

A: A member may 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.

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 PEEC did not believe that the complexities involved in applying FIN 48 would automatically preclude members from assisting clients with its implementation.

The PEEC believes that in most cases a member should be able to advise the client about whether a tax position meets the MLTN threshold and the likelihood that portions of the related tax benefit will not be realized. The member should also adequately inform them of the factors upon which the member’s advice was based such that the client would be in a position to make an informed judgment on the results of the member’s services and take responsibility for the work. In those instances, the Committee believes that assisting the client in applying FIN 48 would not impair the member's independence.

In reaching this conclusion, the PEEC referred to its longstanding position documented in its "Guidance in Understanding General Requirement No. 2: Client Responsibilities" of Interpretation 101-3.

Specifically, 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.

Further guidance is available in the AICPA’s FAQ document entitled Have You Impaired Your Independence by Performing Nonattest Services for Your Attest Clients?

Additional questions regarding this topic may be directed to the MACPA Government Relations and Regulatory Affairs Department by email, legislation@michcpa.org.

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