22 December 2011

EFRAG and UK ASB: Discussion Paper on income tax

The EFRAG and the UK ASB of the FRC published a Discussion Paper, 'Improving the Financial Reporting of Income Tax', resulting from a project developed by EFRAG and the UK ASB jointly. The Discussion Paper is open for comment until 29 June, 2012.

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 practise. 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). 

Press release

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