IASC amends standard on income taxes

IASC Amends Standard on Income Taxes and Issues ED on Employee Benefits

T he International Accounting Standards Committee revised International Accounting Standard (IAS) no. 12, Accounting for Taxes on Income. It also issued an exposure draft on accounting for retirement benefits that would replace IAS no. 19, Retirement Benefit Costs.

The revision of IAS no. 12 reduces the number of options companies have when accounting for deferred tax. "Most of the various options in the old standard have been eliminated," said Sir Bryan Carsberg, IASC secretary-general. "The result should be much clearer information for users of financial statements."

Previously, companies accounting for timing differences between taxable profit and accounting profit could choose either the deferral method or a liability method. The revised standard requires companies to use a liability method. "The revised standard is very similar to Financial Accounting Standard Board Statement no. 109, Accounting for Income Taxes, " said Peter Clark, IASC senior research manager. "There are only a few exemptions in FASB Statement no. 109 that are not in IAS no. 12, such as exemptions for hyperinflation in foreign subsidiaries." He said the FASB attended IASC meetings and provided input to help harmonize the FASB and IASC standards. IAS no. 12 will be effective for periods beginning on or after January 1, 1998.

Updating pension regulations
The IASC exposure draft (E54) for retirement benefits is intended to clarify how retirement benefit costs should be treated on the balance sheet. Key proposals of the ED include

  • Replacing projected valuation methods with a single accrued benefit method.
  • Measuring defined benefit obligations at each balance sheet date.
  • Measuring discount rates for both funded and unfunded obligations at the balance sheet date and at the market yield for high-quality, fixed-rate corporate bonds. In countries where such bonds are less frequently used, the yield should match that of government bonds.
  • Using a 10% corridor for actuarial gains and losses on underlying benefit obligations and any related plan assets. Gains and losses that exceed the 10% corridor must be recognized immediately. This differs from FASB Statement no. 87, Employers Accounting for Pensions, which permits companies to amortize actuarial gains and losses that fall outside the corridor, said Clark.

The International Organization of Securities Commissions (IOSCO) requested that the IASC address postretirement benefits. The IOSCO is expected to endorse IASs for cross-border capital raising and listing for all global markets. This exposure draft is a major step in that direction, said Carsberg. Comments on E54 are due to the IASC in writing by January 31.

Copies of IAS no. 12 (revised 1996) ($24 each) and E54 ($16 each) can be obtained by calling the IASC in London at +44-171-353-0565 or by fax at +44-171-353-0562.

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