FAF to review standard on accounting for income taxes

The Financial Accounting Foundation (FAF) has chosen a 1992 standard focusing on accounting for income taxes as the subject of its next post-implementation review.

FASB Statement No. 109, Accounting for Income Taxes, establishes standards for reporting the effects of income taxes in an organization’s financial statements. The standard is mostly codified in Accounting Standards Codification Topic 740, Income Taxes.

The review will assess the standard’s effectiveness.

“Stakeholders frequently note that income tax accounting is a complex topic,” FAF President and CEO Terri Polley said in a news release, “and over the years the FASB’s advisory groups have mentioned that it is an area that could be improved—both the accounting guidance and information disclosed to investors.”

The standard’s objective is to recognize the amount of:

• Taxes payable or refundable for the current year, and
• Deferred tax liabilities and assets for the future consequences of events that have been recognized in an organization’s financial statements or tax returns.

This will be the fourth post-implementation review conducted by FAF, which is FASB’s parent body. The first review concluded that controversial FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, generally achieves its purpose. That review was completed in January 2012.

Last month, a review of FASB Statement No. 131, Disclosures About Segments of an Enterprise and Related Information, concluded that the standard is generally effective but has room for improvement.

A review of FASB Statement No. 141R, Business Combinations, is under way.

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