04 February 2013

FASB: Post-implementation review of FASB standard on accounting for income taxes

FASB Statement No 109, 'Accounting for Income Taxes' (FAS 109) (codified in Accounting Standards Codification Topic 740, Income Taxes), establishes financial accounting and reporting standards for the effects of income taxes that result from an organisation’s activities during the current and preceding years.

The objective of FAS 109 is to recognise the amount of

a) taxes payable or refundable for the current year, and

b) deferred tax liabilities and assets for the future tax consequences of events that have been recognised in an organisation’s financial statements or tax returns.

FAS 109 applies to public and private companies, and nonprofit organizations that file financial reports in accordance with US GAAP.

“FAS 109 was chosen for review because it meets several of our post-implementation review criteria. When it was issued, it represented a significant change in the accounting for income taxes and affected a wide range of organisations”, said FAF President and Chief Executive Officer Teresa S Polley. “Additionally, stakeholders frequently note that income tax accounting is a complex topic 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 the information disclosed to investors.”

To date, the FAF PIR team has completed reviews of two FASB standards: FASB Statement No 131, 'Disclosures about Segments of an Enterprise and Related Information' (codified in Accounting Standards Codification Topic 280, Segment Reporting) in January 2013; and FASB Interpretation No 48, 'Accounting for Uncertainty in Income Taxes' (FIN 48) (codified in Accounting Standards Codification Topic 740, Incomes Taxes), in January 2012. The PIR of FASB Statement No 141R, 'Business Combinations', is currently under way.

The PIR process is intended to assist the FAF’s Board of Trustees with its ongoing efforts to evaluate the effectiveness of the standard-setting process for both the FASB and the GASB. The PIR process is designed to be independent of the standard-setting process of the FASB and the GASB. The FAF review staff reports to the Trustees and the FAF president and chief executive officer, but review team members are drawn from experienced FASB and GASB staff to promote a collaborative review process aimed at improving the standard-setting process.

Press release

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