Financial Accounting and Reporting-CPA Practice Exam

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Which agency’s guidelines do companies usually follow concerning uncertain tax positions?

  1. Financial Accounting Standards Board

  2. Internal Revenue Service

  3. International Accounting Standards Board

  4. U.S. Securities and Exchange Commission

The correct answer is: Internal Revenue Service

Companies typically follow the guidelines established by the Internal Revenue Service (IRS) concerning uncertain tax positions. The IRS provides specific regulations and interpretations related to tax laws that affect how businesses approach their reporting of uncertain tax positions. When a company recognizes uncertainty in its tax positions, it must determine the likelihood of the position being sustained upon examination by tax authorities, which includes guidelines from the IRS. This assessment directly impacts how companies report these uncertainties in their financial statements, ensuring compliance with tax regulations and reducing the risk of penalties. The other agencies mentioned, while influential in their fields, do not specifically focus on uncertain tax positions. The Financial Accounting Standards Board (FASB) sets accounting standards in the U.S. but would reference IRS guidelines when it comes to tax-related issues. The International Accounting Standards Board (IASB) deals with global accounting standards that may not focus specifically on U.S. tax positions. The U.S. Securities and Exchange Commission (SEC) oversees securities laws and regulations impacting public companies, but it does not provide detailed tax guidance.