Spatt, Chief Economist and Direct of the Office of Economic Analysis for the U.S. Securities and Exchange Commission, in his speech regarding FIN 48, “the transition to the new rule itself may be quite complex.” This speech was given on March 8, 2007 in light of controversy surrounding the interpretation issued in the previous year. While Spatt aimed to portray the economic benefits of FIN 48, he did not do so without admitting that there was some truth to the concerns of many disputers. He specifically referenced the fact that both auditors and firms would have to assess open issues going back as far as a decade (Spatt, “The Economics of FIN 48”). Additionally, it was argued in an article by Arthur J. Radin that the more-likely-than-not test of recognition would cause firms and auditors to make assumptions that do not follow common experience. While the test operates under the assumption that all uncertainties will be assessed by the taxing authority, in actuality the IRS audit rate in 2004 was only 2 audits for every 1,000 businesses (Radin, “Uncertainties Created”). Thus, firms and their auditors could be completing unnecessary and costly work that is not outweighed by the benefits provided. In addition to the sheer amount of work created for auditors by the implementation of FIN 48, public accounting firms must also consider the implications that the new rule has on their compliance with many of the Generally Accepted Auditing Standards …show more content…
According to the post-implementation review, “reported information about income tax uncertainties is more relevant since FIN 48 was issued.” It also touches on the “benefits of FIN 48’s improved consistency and reporting… [that] outweigh its costs” (Schroeder et al., Post-Implementation Review Report). These findings are obviously positive with regards to the external stakeholders of these organizations affected by the changes as well as the organizations themselves, but there have also been positive effects for the auditors of these firms. One purpose FIN 48 was to reduce inconsistencies in accounting for income taxes that might lead to income “smoothing” – a form of management fraud (Spatt, “The Economics of FIN 48”). These new guidelines have created a pathway for auditors to assess and identify instances of fraud, thus reducing audit