Oil giant BP has today announced it is implementing a new deferred tax accounting standard, reducing its top-line earnings and increasing its reported income tax provision.
The standard, FRS 19, was introduced in December 2000 and requires ‘full provision to be made for deferred tax assets and liabilities arising from timing differences between the recognition of gains and losses in the financial statements and their recognition in a tax computation.’
The new rules will be applied for the first time in its first quarter results due 30 April and will result in a higher reported income tax provision and reduced headline earnings.
But BP added the charge would not affect the company’s return on capital or dividends.
Chief financial officer John Buchanan said: ‘Although it changes some of our reported results, important measures do not change. Our performance targets, including 5.5% upstream volume grown and £ 980m ($1.4bn) pre-tax mid-cycle performance improvement for 2002 remain in place.’
‘Cash flow does not change. Our operations will generate the same amount of cash before and after FRS 19, and we will continue to redeploy this cash based on our financial and operating framework.’
For purposes of comparison, BP will also apply the new rule to its earnings in the past five years, making pro-forma results drop by about 12%, but Buchanan said the reduction in the pro-forma result is non-cash.