FASB FIN 48 DISCLOSURES: EVIDENCE ON USER PERCEPTIONS

Thomas Smith, Adrian Valencia, Ara Volkan and Jordin Vorisek

Accounting & Taxation, 2023, vol. 15, issue 1, 27-41

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

Keywords: Uncertain Tax Positions; Educated Non-Professional Investors; Information Usefulness; Financial Statement Transparency; Aggressive Tax Strategies (search for similar items in EconPapers)
JEL-codes: M42 (search for similar items in EconPapers)
Date: 2023
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