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FASB issues simplification initiative for income tax

Specific exceptions will be eliminated to the general principle in Topic 740—Income Taxes in Generally Accepted Accounting Principles (GAAP), following the proposal.

The ASU eliminates the need for an organisation to analyse whether the following apply in a given period:

  • Exception to the incremental approach for intraperiod tax allocation
  • Exceptions to accounting for basis differences when there are ownership changes in foreign investments, and
  • Exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses.

The proposed ASU aims to improve financial statement preparers’ application of income tax-related guidance and simplify GAAP for:  

  • Franchise taxes that are partially based on income
  • Transactions with a government that result in a step up in the tax basis of goodwill
  • Separate financial statements of legal entities that are not subject to tax, and
  • Enacted changes in tax laws in interim periods.

The proposal will not create new accounting requirements not previously reported in Topic 740.

As part of the FASB’s Simplification Initiative, the proposal aims to make simplifications and improvements to accounting standards through a series of short-term projects.

Comments on the proposal are open until 28 June 2019.

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