**Step 1: Recognition of Uncertain Tax Positions**

In accounting for uncertain tax positions, companies assess and recognize potential tax liabilities that are uncertain in nature. These uncertainties arise from differences in interpretation of tax laws between the company and tax authorities. The process involves evaluating the likelihood of tax positions being challenged and the eventual resolution through negotiation, litigation, or settlement.

- **FASB ASC Topic 740:** The Financial Accounting Standards Board (FASB) ASC Topic 740, also known as Accounting for Income Taxes, provides guidance on the recognition, measurement, presentation, and disclosure of uncertain tax positions. Companies apply a two-step approach: recognition and measurement.

- **Recognition Criteria:** Uncertain tax positions are recognized in the financial statements when it is more likely than not (a likelihood greater than 50%) that the position will be sustained upon examination. This criterion forms the basis for determining whether a tax benefit should be recognized.

**Step 2: Measurement and Disclosure**

- **Measurement of Uncertain Tax Positions:** The measurement of uncertain tax positions involves estimating the amount of potential loss that may be incurred if the tax position is not sustained. This estimation considers the probability-weighted outcomes of possible settlement scenarios.

- **Disclosures in Financial Statements:** FASB ASC Topic 740 requires companies to disclose information about their uncertain tax positions in the financial statements. This includes a description of the tax positions, the nature of uncertainties, and the potential impact on the financial statements if the tax positions are not sustained.

**Step 3: Ongoing Assessment and Changes in Uncertain Tax Positions**

- **Ongoing Assessment:** Companies continually assess their uncertain tax positions as new information becomes available or as tax laws change. This ongoing assessment ensures that financial statements accurately reflect the current status of uncertain tax positions.

- **Changes in Estimates:** If there are changes in estimates related to uncertain tax positions, companies adjust their provisions and disclosures accordingly. This reflects the dynamic nature of tax environments and the need for accurate financial reporting.

**Objective Type Question:** How does FASB ASC Topic 740 recommend recognizing uncertain tax positions in financial statements?

A) When there is a possibility of challenge by tax authorities.

B) When it is more likely than not that the position will be sustained upon examination.

C) Only if the tax position is ultimately settled.

D) If the company prefers to disclose uncertain tax positions.

Choose the correct option and provide a brief explanation of your choice based on the case study.