ASB and EFRAG issue a Discussion Paper: 'Improving the Financial Reporting of Income Tax'
News types: Consultation Announcement
Published: 22 December 2011
ASB PN 365
The Accounting Standards Board (ASB) of the FRC and the European Financial Reporting Advisory Group (EFRAG) have today published a paper in order to solicit views on how the financial reporting of income tax could be improved. Tax is an important expense for most companies, and transparent and complete financial reporting is complex because the tax effects of transactions do not always fall in the same period as they are reported in the financial statements.
Requirements for the financial reporting of income tax are currently set out in IAS 12 ‘Income Taxes’. Some consider that the information that is provided in compliance with that standard is not as useful as it might be, and that the standard is cumbersome and difficult to understand and apply in practice. The new paper discusses ways in which the usefulness of information prepared in accordance with IAS 12 could be enhanced. In particular it discusses possible changes to the reconciliation of tax expense to a standard rate; revisions to the requirements in respect of uncertain tax positions; and whether deferred tax should be discounted.
The paper also discusses alternative approaches that could form the basis for a new accounting standard that would replace IAS 12. These are the flow-through approach (under which only the tax payable on taxable income for the period is reported as an expense); the partial allocation approach (under which only those tax effects likely to affect the tax payable for future periods is deferred); the valuation adjustment approach (under which tax effects are dealt with as part of the carrying amount of related assets and liabilities); and the accruals approach (under which the tax effect of all transactions are recognised and allocated to the period to which they relate).
The Discussion Paper is open for comment until 29 June 2012.
Notes to Editors
Requirements for the financial reporting of income tax are currently set out in IAS 12 ‘Income Taxes’. Some consider that the information that is provided in compliance with that standard is not as useful as it might be, and that the standard is cumbersome and difficult to understand and apply in practice. The new paper discusses ways in which the usefulness of information prepared in accordance with IAS 12 could be enhanced. In particular it discusses possible changes to the reconciliation of tax expense to a standard rate; revisions to the requirements in respect of uncertain tax positions; and whether deferred tax should be discounted.
The paper also discusses alternative approaches that could form the basis for a new accounting standard that would replace IAS 12. These are the flow-through approach (under which only the tax payable on taxable income for the period is reported as an expense); the partial allocation approach (under which only those tax effects likely to affect the tax payable for future periods is deferred); the valuation adjustment approach (under which tax effects are dealt with as part of the carrying amount of related assets and liabilities); and the accruals approach (under which the tax effect of all transactions are recognised and allocated to the period to which they relate).
The Discussion Paper is open for comment until 29 June 2012.
Notes to Editors
- The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment.
- The role of the ASB is to oversee the financial reporting requirements for UK entities. This is done by maintaining and improving UK Financial Reporting Standards (FRS) and influencing the development of international standards. The ASB achieves this by collaborating with accounting standard-setters from other countries and the International Accounting Standards Board (IASB).
- The ASB has ten Board members, of whom two (the Chairman and the Technical Director) are full-time, and the remainder, who have a variety of experiences as preparers, auditors and users of financial reports, are part-time.
- EFRAG was set up principally for the purpose of providing proactive advice to the IASB, for advising the European Commission on the acceptability of IFRS for endorsement for use in Europe in the consolidated accounts of all listed companies, for stimulating, coordinating and carrying out proactive accounting activities, and for advising the European Commission on any resulting changes to be made to the accounting directives and related topics. EFRAG website: www.efrag.org