An analysis of uncertain tax positions among the S&P 100 finds a big spread in the numbers companies are reporting relative to their total assets and net income.

The study, conducted by the Georgia Tech Financial Analysis Lab, sought to illuminate the accounting for uncertain tax positions, or unrecognized tax benefits, and measure their significance compared to assets, income tax expense, and net income. The 100 companies reported an average uncertain tax position of approximately 0.8 percent of total assets, although a handful of outliers skewed the average, says Chuck Mulford, director of the Financial Analysis Lab and author of the report.

Uncertain tax positions arise in financial statements because of timing differences between tax reporting and financial reporting and uncertainty over how given tax positions will hold up under review by tax authorities. Both the Financial Accounting Standards Board and the Internal Revenue Service have introduced rules in the past several years that require companies to disclose the magnitude of uncertainty in financial statements and tax filings.

The Georgia Tech analysis found only a handful of companies that appeared not to comply adequately with financial statement disclosure requirements. “The objective of the standard was to inform financial statement readers regarding the potential effects on income tax expense and net income of adjustments to uncertain tax positions,” says Mulford. “Based on the disclosures we're seeing, that objective is being met.”

Still, Mulford was surprised by the magnitude of some of the positions. Accenture PLC, for example, reported unrecognized tax benefits of $1.6 billion, representing 9.6 percent of total assets. “It's potentially a really big number and has important implications for analysts and investors,” says Mulford. If recognized, Accenture's unrecognized tax benefit figure would represent 32.8 percent of average net income over the past three years. From an asset standpoint, other outliers include prominent technology giants like IBM at 4.8 percent, Dell at 5.1 percent, Oracle at 4.2 percent, Cisco Systems at 3.1 percent, as well as pharmaceutical companies like Abbott Laboratories at 3.4 percent, Eli Lilly at 4.2 percent, Merck at 4.2 percent, and Pfizer at 3.4 percent.

Compared with earnings, Bank of America's uncertain tax position leads the list. The company's uncertain tax position totaled $3.68 billion, representing only 0.2 percent of assets but nearly triple the company's average earnings over the past three years, the study says. Hewlett-Packard also tops the list with an uncertain tax position that represents at 131.9 percent of average earnings from the past three years. Among the 100 companies, the median figure is only 11.8 percent.

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