Last week the Financial Accounting Standards Board (FASB) released its long-awaited final guidance on defining “settlement” in FASB Interpretation No. 48, Accounting For Uncertainty in Income Taxes (FIN 48). Set forth in Staff Position No. FIN 48-1 (FSP 48-1), the Board provides three conditions a tax position will have to meet to be considered “effectively settled”: a) the taxing authority has completed all required examination procedures; b) the company does not intend to appeal any aspect of the tax position; and c) the chance that the taxing authority would reexamine any aspect of its position is remote. The guidance is effective upon the initial adoption of FIN 48 (e.g., Jan. 1, 2007 for calendar-year-end financials), and will apply retrospectively if a company did not apply FIN 48 in a manner consistent with the new FSP.
The Board also released its Staff Position No. FIN 39-1, amending FIN 39, Offsetting Amounts Related to Certain Contracts. In particular, this FSP replaces the terms conditional contracts and exchange contracts with the FASB-defined term derivative instruments (see FAS 133). It also permits companies to offset fair value amounts recognized for a receivable or payable “against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement that have been offset in accordance with that paragraph.” FSP FIN 39-1 is effective for fiscal years beginning after November 15, 2007.
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