The Financial Accounting Standards Board (FASB) has decided to explore the option of simplifying the standards in relation to deferred tax assets and liabilities from a reporting and classification standpoint. After many sleepless months, the FASB has proposed two accounting standard updates:
- Intra-entity asset transfers and;
- Balance sheet classification of deferred taxes
The two proposals were issued on Jan. 22, 2015 and the comment period will extend until May 29, 2015.
The first proposal in regards to intra-entity asset transfers is in effort to "eliminate the exception in GAAP that prohibits recognizing current and deferred income tax consequences for an intra-entity asset transfer until the asset or assets have been sold to an outside party. Consequently, this proposal requires that an entity recognize the current and deferred income tax consequences of an intra-entity asset transfer when the transfer occurs". This proposal would be in convergence with the current standards for IFRS. For public entities, the proposal would be effective for periods beginning after Dec. 15, 2016 with early adoption not permitted. For all other entities, the proposal would be effective for annual periods beginning after Dec. 15, 2017 and Dec. 15, 2018 for interim periods with early adoption not permitted.
Disclosures would be required for the nature and reason of the change in accounting principle, and the quantitative effects of the change.
The second proposal in regards to balance sheet classification of deferred taxes, would only affect entities that present a classified statement of financial position. Currently, GAAP requires deferred tax assets and liabilities to be classified into current and non-current classifications which can be costly and often conflict with financial user usefulness and benefit, and often do not accurately reflect the time period in which the amounts are to be recovered or settled.
In order to simplify the classification process and also reduce the costs involved with tracking, the proposal suggests classifying these tax deferrals as non-current. The proposal would not amend the current standard that deferred tax assets and liabilities be netted and presented as a single amount. This proposal also converges with the current standards of the IFRS.
For public entities, the proposal would be effective for annual periods; including interim periods within the annual period, beginning after Dec. 15, 2016 with early adoption not permitted. For all other entities, the proposal would be effective for annual periods beginning after Dec. 15, 2017 and interim periods in annual periods beginning after Dec. 15, 2018 with early adoption not permitted.
Comments to the FASB can be submitted during the comment period (May 29, 2015) in one of three ways:
- By using the electronic feedback form on the FASB website.
- Emailing a written letter to firstname.lastname@example.org with file reference No. 2015-200-I or No. 2015-210-II
- Mailing comments to 401 Merritt 7, PO Box 5515, Norwalk, CT, 06856-5116, addressed to the technical director and with applicable file reference (No. 2015-200-I or 2015-210-II, depending on the proposal the comments are responding to)
For more information on the FASB proposals, please contact your local UHY LLP professional.