Income Statement Reporting Discretion Allowed by FIN 48: Interest and Penalty Expense Classification
研究FIN 48允许企业对未确认税收优惠的利息和罚款费用在利润表中自由分类，发现税收规避、CEO薪酬敏感性及债务契约影响分类选择，且分类影响分析师预测准确性。
ABSTRACT Financial Accounting Standards Board Interpretation No. 48 (FIN 48, FASB 2006) allows discretion regarding the income statement classification of interest and penalty expenses for unrecognized tax benefits (UTBs). We investigate whether tax avoidance, management compensation, and debt agreements affect the expense classification election and whether this discretion has implications for financial statement users. We find firms that engage in tax avoidance activities, measured by effective tax rates (ETRs) and involvement in tax disputes, are more likely to include interest and penalties in tax expense. We also find that interest and penalties are more likely to be classified as tax expense when CEO compensation is more sensitive to pre-tax income. Finally, we find that UTB interest and penalty expense classification is associated with analysts' ETR forecast accuracy, which suggests there is a potential unintended consequence related to decision usefulness of FIN 48 reporting due to expense classification discretion.