The Accounting Policy & Practice Report ® provides financial accounting policy makers, advisors, and practitioners with the latest news, expert insights, and guidance on emerging, evolving,...
Companies using international financial reporting standards will have a clearer idea of how to tackle some types of uncertainty in accounting for income taxes.
The International Accounting Standards Board voted 12-1 at its May 16 meeting to approve a measure to clarify International Accounting Standard 12: Income Taxes. It directed its staff to draft the clarification for final board approval.
The interpretation of IAS 12—prepared in response to a question posed to IASB’s IFRS Interpretations Committee (IFRIC)—aims to resolve the problem of companies using various reporting methods to recognize a current tax asset if an entity must make payments on a disputed tax treatment.
“IAS 12 Income Taxes includes requirements on recognition and measurement of tax assets and liabilities, but does not specifically address how to reflect uncertainty,” a staff document prepared for the meeting said.
In response, IFRIC released a draft interpretation, Uncertainty Over Income Tax Treatments, of IAS 12 in October 2015.
The proposed interpretation would require companies to:
If an entity concludes that it is unlikely a taxation authority will concur with its uncertain tax treatment, the company should incorporate the impact of this uncertainty into its related tax positions, staff said.
A company should use either a method that predicts the most likely result among an array of possible outcomes or, alternately, the expected value approach.
The expected value method uses “the sum of the probability-weighted amounts in a range of possible outcomes,” the interpretation said.
A company would choose the measurement method that offers the better predictor of the two approaches for resolving the uncertainty, the draft interpretation said.
The comment period on the interpretation ended in January 2016.
Among the 61 comment letters received, most respondents agreed with the interpretation, and “there have been no substantive changes made to those proposals during redeliberations,” staff said.
During the May 16 meeting, IASB members largely concurred with the proposal, though Stephen Cooper said the interpretation raised larger questions about what the term “expected value” means.
Cooper didn’t challenge the interpretation, but said, “We’ve never really bottomed out on ‘expected value.’” The phrase is vague, he said, and IASB should consider having “a fundamental debate” on its meaning.
Once balloting concludes, the board anticipates issuing the interpretation in the second half of this year.
The interpretation didn’t include a proposed effective date, and IASB agreed with a staff recommendation that the interpretation should come into force on Jan. 1, 2019, although it can be applied earlier.
The board also agreed to transition relief, “which means that an entity is not required to restate comparative information when first applying the Interpretation,” staff said.
The IAS 12 interpretation is part of IASB’s broader annual improvements process. This seeks to address shortcomings or confusion in IFRS efficiently by issuing proposals for tightly drawn amendments at the same time.
To contact the reporter on this story: David R. Jones in London at email@example.com
To contact the editor responsible for this story: S. Ali Sartipzadeh at firstname.lastname@example.org
Staff papers drafted for the meeting are available at http://www.ifrs.org/Meetings/Pages/IASB-Meeting-May-2017.aspx
Copyright © 2017 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)