AIMA

FIN 48 and IAS 12

The Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), is an Interpretation of FASB Statement No. 109, which seeks to clarify accounting for uncertainty in income taxes in an enterprise’s financial statements. FIN 48 creates thresholds for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

FIN 48 applies to uncertain tax positions taken with respect to income-based taxes and needs to be addressed in all US GAAP financial statements for domestic and offshore funds and management companies. For funds, this includes positions taken with respect to federal, state, local and foreign taxes. The term ‘tax positions’ includes positions taken on returns in all open tax years and in all jurisdictions.

In March 2011, AIMA commented on an International Accounting Standards Board (IASB) exposure draft of its standard, IAS 12, as to the requirement of hedge funds for NAV certainty. We highlighted the position of funds reporting under US GAAP, which had been required to book material provisions for uncertain tax exposures under FIN 48 and, in some extreme cases, those provisions had been up to 25% of NAV with significant detrimental impact on investors’ returns which often caused them to redeem their holdings. In our submission, we called upon the IASB to ensure that IAS 12 is drafted so that the subjectivity element of the equivalent US accounting provisions, which had led to increased volatility in returns for investors, is minimised so that managers are able to maintain a stable NAV for their funds.

AIMA documents

Submission to IASB - IAS12: accounting for uncertain tax provisions (March 2011) 

Note for members (December 2009)