M any companies are in the early
stages of considering what impact the transition
to International Financial Reporting Standards
(IFRS) from U.S. GAAP will have on financial
reporting. However, are they also thinking about
the impact it will have on tax reporting? While
practitioners may have focused on the effect that
IFRS’s elimination of LIFO would have, other tax
accounting implications must be considered.
Panelists at SEC roundtables in December 2007
generally agreed that U.S. domestic companies
registered with the SEC should be required to file
IFRS financial statements at some point in the
future and that the SEC should establish a time
frame for implementing the requirement.
Accordingly, it appears that IFRS is coming and
may be replacing GAAP in the future.
IMPACT ON TAX ACCOUNTING METHODS
The particular methods of accounting a
company uses have many effects outside of
financial statements. Consequently, converting
financial statements from one reporting standard
to another will have broad implications beyond
just financial (book) accounting.
be important for tax return preparers to
understand any differences between the old book
reporting method and the IFRS reporting method to
ensure the proper treatment for tax reporting
purposes. Thus, along with retraining preparers of
financial statements in a new book accounting
method, companies will need to ensure that
internal users of financial accounting
information, such as the tax department,
understand the nuances between the different book
methods. Generating awareness will be especially
important in the year of change because some
effects of the conversion may be recorded in
Consider, for example, items that
are currently treated the same for book and tax
purposes. If the book treatment changes as a
result of implementing a new IFRS method,
companies would need to determine how to continue
using the historical tax method. This may lead to
Is there a financial conformity rule
that needs to be followed under the tax law?
Can the historical tax method be
continued, or will the new book method omit
information needed to produce the historical tax
Does the company have the information
available to compute the book/tax differences?
Is the new book method an acceptable
method for tax reporting purposes?
Depending on the answers to these questions,
companies may need to file Form 3115,
Application for Change in Accounting Method
, to change some historical tax methods.
It is likely that any global accounting
standards that the U.S. may transition to in the
future will be different from the IFRS that exists
today. Ongoing convergence efforts could continue
to lessen the differences and may ease some of the
anticipated burden. Nevertheless, tax
practitioners need to start thinking now about the
tax implications of the transition.
detailed discussion of the issues in this area,
see “IFRS Is Coming: What Does This Mean for Tax?”
by Christine J. Newell, CPA, and Frank J. Kalis
Jr., CPA, in the June 2008 issue of The Tax
— Alistair M. Nevius,
The Tax Adviser
Also look for
articles on the following topics in the June 2008
issue of The Tax Adviser :
A look at how final regulations might
apply the Knight “commonly incurred” test
for deductibility of trust administrative costs.
Tools for tax planning for foreign
A report on single-employer qualified
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