Accounting for income taxes standard achieves purpose, panel finds

BY KEN TYSIAC

A review panel has concluded that a 1992 financial reporting standard addressing accounting for income taxes generally achieves its purpose but may not have reduced complexity.

The Financial Accounting Foundation (FAF) post-implementation review team received input for its report from financial statement users, preparers, auditors, and academics on FASB Statement No. 109, Accounting for Income Taxes. The review team was not able to discern whether the complexity is a result of FAS 109’s requirements, changes that have occurred since the standard was issued, or both.

Applying FAS 109 produces decision-useful information for investors, the team found, but certain income tax information may not satisfy investor needs. Income tax information provided may not give enough detail for users to:

  • Analyze the cash effects associated with income taxes—particularly current-period taxes paid by jurisdiction—and estimate future tax payments.
  • Analyze earnings determined to be indefinitely reinvested in foreign subsidiaries.


FASB Chairman Russell Golden said in a statement that the board is eager to consider the review team’s findings.

The post-implementation review process assists FAF’s trustees in evaluating the effectiveness of FASB and GASB standards. The first post-implementation review of a standard was completed in January 2012.

FAS 109, now codified in FASB Accounting Standards Codification Topic 740, requires companies to recognize the estimated amount of taxes payable or refundable for the current year. It also requires companies to recognize deferred tax liabilities and assets for future tax consequences of events that have been recognized in financial statements or tax returns.

Costs high

Complying with FAS 109 gives rise to significant ongoing costs, according to the review team. Some of the costs are the result of factors that have arisen since the standard was issued, such as Sarbanes-Oxley Act requirements, and increased business conducted in foreign jurisdictions by U.S. companies.

The FAF team currently is reviewing FASB Statement No. 157, Fair Value Measurements, and GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries.

In the future, the team plans to review:

  • FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements.
  • GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, and related Statement No. 36, Recipient Reporting for Certain Shared Nonexchange Revenues.


Those interested in providing feedback can register on the FAF website.

GASB process adopted

The FAF board of trustees on Tuesday adopted a new policy outlining a process for GASB and FAF’s Standard-Setting Process Oversight Committee to follow to determine whether potential agenda items fall within the scope of GASB’s standard-setting mission.

The policy limits the trustees’ pre-agenda involvement to advising and counseling GASB in a change from a previous proposal that caused stakeholders to become concerned that trustees would have too much influence.

FAF also announced the appointment of Maryland State Treasurer Nancy Kopp to its board of trustees, effective Jan. 1. She replaces retiring trustee Cynthia Eisenhauer.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

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