ASB proposes reform of income tax reporting

THE FINANCIAL reporting of income tax is set to be reformed under proposals set out by the Accounting Standards Board.

The board, which is part of the Financial Reporting Council, has released a joint consultation paper with the European Financial Reporting Advisory Group (EFRAG). It says that the reporting is currently complex because the tax effects of transactions do not always fall in the same period as they are reported in financial statements.

The current standard, IAS 12 ‘Income Taxes’, is “cumbersome and difficult to understand and apply in practice”, the ASB said. The paper proposes: changes to reconciliation of tax expense to a standard rate; revisions to the requirements in respect of uncertain tax positions; and whether deferred tax should be discounted.

It also suggests alternative approaches to replace IAS 12, including a “flwo-through approach”, in which only tax payable on the taxable income is reported as an expense, and a partial allocation approach, “under which only those tax effects likely to affect the tax payable for future periods is deferred”.

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Fiona Westwood of Smith and Williamson.