The Financial Accounting Standards Board has issued an exposure draft of two proposed accounting standards updates that would affect the accounting for income taxes for businesses.
The updates pertain to intra-entity asset transfers and balance sheet classification of deferred taxes. FASB said they were part of its simplification initiative for reducing complexity in accounting standards.
With regard to the first update, FASB is proposing 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. The proposal would require that an entity recognize the current and deferred income tax consequences of an intra-entity asset transfer when the transfer occurs. The proposed update would align the recognition of income tax consequences of intra-entity asset transfers under U.S. GAAP with the treatment of them under International Financial Reporting Standards.
For the other update, on balance sheet classification of deferred taxes, FASB said the proposed guidance would affect only entities that present a classified statement of financial position.
“Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position,” said FASB. “Stakeholders informed the board that the requirement results in little or no benefit to users of financial statements because the classification does not generally align with the time period in which the recognized deferred tax amounts are expected to be recovered or settled. In addition, there are costs for an entity to separate deferred income tax liabilities and assets into a current and noncurrent amount.”
To simplify matters, FASB is proposing that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. FASB noted that the proposed guidance would not amend the current requirement that deferred tax liabilities and assets of a taxpaying component be offset and presented as a single amount.
FASB is asking for comments on the proposed updates by May 29, 2015.
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