CPEA Report Results in Elimination of the Disclosure of Open Tax Years When No Unrecognized Tax Benefits Exist

March 24, 2015

As a result of investigative work conducted by the Center for Plain English Accounting (CPEA), Technical Practice Aid (TPA or TIS) 5250.15, which required an entity to disclose a description of tax years that remain subject to examination regardless of whether an entity has any uncertain tax positions (i.e., unrecognized tax benefits), has been deleted. In researching our recent report titled, Controversy Over the Applicability of the Disclosure Requirement of Open Tax Years: Unintended Consequences and Lessons for All, we communicated with appropriate individuals at the FASB and AICPA on the issues noted in that report. Consequently, members of the FASB and Private Company Council (PCC) said that the guidance in TPA 5250.15, Application of Certain FASB Interpretation No. 48 (codified in FASB ASC 740-10) Disclosure Requirements to Nonpublic Entities That Do Not Have Uncertain Tax Positions, should change and that disclosures of open tax years are necessary only if an entity has unrecognized tax benefits.  The March update for AICPA Technical Questions and Answers, which contain TPAs, has deleted TPA 5250.15. 

FASB Accounting Standards Update (ASU) 2009-06, Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities, was released in 2009. It amended FASB Accounting Standards Codification (FASB ASC) 740, Income Taxes, and retained the disclosure requirement in FASB ASC 740-10-50-15(e), which requires a description of tax years that remain subject to examination. In our recent report, we note that Paragraphs BC 13-14 in the Basis for Conclusions of ASU 2009-06 are sufficiently clear that entities without material unrecognized tax benefits are not required to disclose tax years open to examination. TPA 5250.15 was in conflict with paragraphs BC 13-14. With the elimination of the TPA, the requirement to disclose a description of tax years that remain subject to examination is clarified to be necessary only when an entity has material unrecognized tax benefits.

The clarification and resolution of this issue will be welcome news to many practitioners. As we extensively detailed in our report, the conflicting guidance on disclosing open tax years had caused considerable confusion and controversy, including numerous Matters for Further Consideration (MFC) and Findings for Further Consideration (FFC) in Peer Review.  The elimination of the TPA may render moot FFCs on this issue that a firm would ordinarily need to consider in future peer reviews.  Practitioners also should be aware that it may take a period of time for Peer Review Checklists and AICPA Accounting and Auditing Guides to be updated to reflect the elimination of TPA 5250.15.  We will continue to monitor and report on further developments. 

We are pleased that the CPEA was able to be the source of this reporting relief to our members and others. We will continue to keep an eye open for other practice issues as we research and develop our reports.

The CPEA provides non-authoritative guidance on accounting, auditing, attestation, and SSARS standards. Official AICPA positions are determined through certain specific committee procedures, due process and extensive deliberation. The views expressed by CPEA staff in this report are expressed for the purposes of providing member services and other purposes, but not for the purposes of providing accounting services or practicing public accounting. The CPEA makes no warranties or representations concerning the accuracy of any reports issued.

Copyright © 2015 by American Institute of Certified Public Accountants, Inc. New York, NY 10036-8775. All rights reserved. For information about the procedure for requesting permission to make copies of any part of this work, please e-mail cpea@aicpa.org with your request. Otherwise, requests should be written and mailed to the Center for Plain English Accounting, AICPA, 220 Leigh Farm Road, Durham, NC 27707-8110.