Is an open tax years disclosure required? Yes, for entities with unrecognized tax benefits.
Open Tax Years Disclosure
ASC 740-10-50 Unrecognized Tax Benefit Related Disclosures does not require an open tax years disclosure when there is no “unrecognized tax benefit.” Many CPAs (including myself) believed that a disclosure of the open tax years was required, even when an entity had no unrecognized tax benefit (or uncertain tax position).
An AICPA non-authoritative Technical Question and Answer (TPA 5250.15) had said that nonpublic entities should disclose open tax years regardless of whether the entity had uncertain tax positions; that guidance has been removed. The Center for Plain English Accounting provided this clarification.
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The AICPA clarified that the open tax years disclosure is not required for companies without unrecognized tax positions, but some peer reviewers are incorrectly writing MFCs and even FFCs related to financial statements without the open tax years disclosure, even for entities without unrecognized tax positions.
The May 2015 Peer Review Update (a newsletter provided to peer reviewers) stated:
Peer reviewers should consider recent guidance that clarifies that a nonpublic entity is required to disclose a description of tax years that remain subject to examination (“open tax years”) only when the entity has uncertain tax positions (i.e. material unrecognized tax benefits).
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About the Author
Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses.He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events.Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.
I certainly will keep this document ready available to show it to my peer reviewer, should it be necessary. Thanks Charles.
Thanks Armando. It takes a long time for changes like this one to be absorbed by parties such as peer reviewers.
Could you please point me to the supporting AICPA literature for your statement above that “The AICPA clarified that the open tax years disclosure is not required for companies without unrecognized tax positions”? In other words, AICPA’s clarification that FIN 48 does not apply to those companies? Thanks for your help.
John, here’s the link: http://www.aicpa.org/InterestAreas/CenterForPlainEnglishAccounting/News/2015/Pages/elimination-of-the-disclosure.aspx
Please let me know if I can assist further.
Thanks Charles! You’ve been a great help.
Glad to assist you John.
Another example of the peer review program misusing their authority and relying on checklists that are out of date and otherwise now applicable
Hey Charles, do you think companies will still continue to disclose even though not required?
Hi Kathryn. I do think some will continue to make the disclosure. This falls in the category of “companies can but don’t have to do so.”
Sorry you couldn’t make it to NAAATS; would like to have seen you.
Thank you Charles! Unfortunately, I wasn’t able to attend NAAATS, but I will be in Nashville in November for the Healthcare Conference. Well wishes to you and your family.