FASB proposes to simplify accounting for income taxes

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The Financial Accounting Standards Board has released a proposed accounting standards update to reduce the cost and complexity of accounting for income taxes.

It would remove specific exceptions to some of the general principles in Topic 740—Income Taxes in Generally Accepted Accounting Principles (GAAP), eliminating the need for an organization to analyze whether several different factors 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 proposal also aims to improve financial statement preparers’ application of income tax-related guidance and simplify GAAP for:

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

FASB noted that the proposal wouldn’t create any new accounting requirements that weren’t previously in Topic 740. It’s part of FASB’s Simplification Initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects.

FASB is asking for comments on the proposal by June 28, 2019.

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Accounting standards Income taxes FASB