If you are an executive of a private entity in Hawaii that issues financial statements for use by anyone outside your organization, you may have a surprise on the way.

Public company executives are painfully aware of the implications that FIN 48, Accounting for Uncertainty in Income Taxes‚ An Interpretation of FASB Statement 109, had on their organizations.

In fact, improperly accounting for income taxes was the second-largest cause of financial restatements in the last year.

More than a third of 601 public companies with revenues of at least $2 billion adjusted their tax reserves by a total of $14.9 billion when they adopted FIN 48. These same companies accrued interest in penalties of $26 billion relating to the adjusted reserves. These adjustments relate to the largest corporations in the U.S., presumably with the most well-informed tax departments.

Public companies, consternation with FIN 48 will continue as they focus on quarterly as well as annual reports and the implications of the alignment of international with domestic accounting rules.

But now the rules are also going to apply to private organizations, if their GAAP basis financial statements are issued to third parties, such as banks, to support underlying loans or lines of credit.

The application of FIN 48 had been deferred to years beginning after Dec. 15, 2007; therefore, it must be addressed for the first time for the 2008 calendar year for most entities.

The rules apply to taxpaying as well as non-tax paying organizations such as charities and hospitals, partnerships, subchapter S corporations, etc.

The amount of work that may be required varies depending upon the type of entity, but each will have to address FIN 48’s application prior to release of its GAAP basis financial statement.

By now you‚Äôre thinking, well certainly this will not mean much for me. That‚  probably what one nationally recognized tax-exempt organization thought, before it received its first $1 million-plus bill from an accounting firm to prepare them for the first issuance of their FIN 48 compliant financial statements.

Compounding the obvious implications for this new rule is a general shortage of tax practitioners that are skilled in the area. Although all service providers have made a concerted effort to expand their resources, the number of private entities in the U.S. as compared to public companies is certain to create a significant strain between now and the first issuance of 2008 financial statements in early 2009.

The Financial Accounting Statements Board has been asked to extend the effective date of FIN 48 again. The board expects to finalize its decision in the first quarter of 2009. Even if it is extended, it will certainly not be eliminated, given the magnitude of problems discovered in public companies.

Further, this area is one of the most technically complex in the accounting world and requires individuals who have mastered all aspects of the tax code.

The more time you have to address the issues, the more efficient and thoughtful the results will be. Waiting to address FIN 48 creates a significant risk that may cause you to have to defer the issuance of your 2008 financial statements.

Of course, you can always wait and spend the holidays with your accountant in the office.