POST IMPLEMENTATION REVIEW CONCLUDES INCOME TAX STANDARD GENERALLY ACHIEVES
ITS PURPOSENorwalk, CT, November 19, 2013—A 1992
accounting standard addressing the accounting for income taxes generally
achieves its purpose. That was the central conclusion of the post-implementation
review (PIR) of Financial Accounting Standards Board (FASB) Statement No. 109,
Accounting for Income Taxes.
Statement 109 requires companies
to recognize the estimated amount of taxes payable or refundable for the current
year. It also requires companies to recognize deferred tax liabilities and
assets for future tax consequences of events that have been recognized in a
company´s financial statements or tax returns. Statement 109 applies to public
and private companies.
FAF President and CEO Teresa S. Polley said: "On
behalf of the FAF and the FASB, I´d like to thank the stakeholders who helped
the PIR team assess the application, usefulness, and effectiveness of the income
tax standard for public and private companies."
FASB Chairman Russell G.
Golden said: "The post-implementation review report on Statement 109 identified
many positive aspects of the income tax standard, including its
decision-usefulness to users and understandability for preparers. Stakeholders
have indicated that income tax accounting remains complex, and we are eager to
consider the PIR team´s findings. We anticipate providing our initial response
in the coming weeks."
The PIR team received input from investors and
other financial statement users, as well as from preparers, auditors, and
academics. Based on its research the review team concluded:
PIR team had no significant standard-setting process recommendations as a result
of the review.
- Statement 109 adequately resolved the issues underlying its stated need
but may not have reduced the complexity of accounting for income taxes. It is
not clear whether the complexity is a result of Statement 109´s requirements,
factors occurring after the issuance of Statement 109 (for example,
significant changes in the business environment and tax laws, along with
increased foreign operations by U.S. companies), or both.
- Information resulting from the application of Statement 109 provides
investors with decision-useful information, although certain income tax
information may not be sufficiently aligned with investor needs. For example,
income tax information may not be detailed enough for users to (a) analyze the
cash effects associated with income taxes, particularly current period taxes
paid by jurisdiction (e.g., U.S. and foreign), and estimate future tax
payments and (b) analyze earnings determined to be indefinitely reinvested in
- Most of Statement 109´s requirements are understandable, can be applied as
intended, and enable income tax information to be reported reliably. The
following aspects of income tax accounting are the most challenging for
stakeholders: intraperiod tax allocations, accounting for intercompany
transfers of assets, and accounting for earnings determined to be indefinitely
reinvested in foreign subsidiaries (and the related disclosures).
- Statement 109 did not result in any significant changes in operating or
financial reporting practices, nor did it have any significant unanticipated
- Stakeholders incur significant ongoing costs to comply with Statement 109.
Some of the costs relate to factors arising after the issuance of Statement
109, including the introduction of the Sarbanes-Oxley Act of 2002 and an
increase in complexity of business transactions, U.S. and foreign tax laws,
and business conducted in foreign jurisdictions by U.S. companies.
The review of Statement 109 was undertaken by an
independent team of the Financial Accounting Foundation (FAF), the parent
organization of the FASB and the Governmental Accounting Standards Board (GASB).
The team´s formal report is available here.
Update on Other PIR Activities
With the completion
of the FAS 109 review, the PIR team has begun their review of FASB Statement No. 123(R), Share-Based Payment.
The FAF also announced today that the PIR team will begin a review of FASB Statement No.
160, Noncontrolling Interests in Consolidated Financial Statements,
after completing their review of FASB Statement No. 157, Fair Value Measurements,
early next year.
The PIR team will also initiate a review of GASB Statement No. 33, Accounting and Financial Reporting
for Nonexchange Transactions, and related GASB Statement No. 36, Recipient Reporting for Certain
Shared Nonexchange Revenues, after completing their review of GASB Statement No. 42, Accounting and Financial Reporting
for Impairment of Capital Assets and for Insurance Recoveries, next
Stakeholders who would like the opportunity to participate in
upcoming PIR surveys, conducted by an independent survey firm on behalf of the
Financial Accounting Foundation, should register
For more information on the PIR process, visit the FAF
About the Financial Accounting Foundation
The FAF is responsible for the oversight, administration, and
finances of both the Financial Accounting Standards Board (FASB) and its
counterpart for state and local government, the Governmental Accounting
Standards Board (GASB). The Foundation is also responsible for selecting the
members of both Boards and their respective Advisory Councils.
About the Financial Accounting Standards Board
1973, the Financial Accounting Standards Board has been the designated
organization in the private sector for establishing standards of financial
accounting and reporting. Those standards govern the preparation of financial
reports and are officially recognized as authoritative by the Securities and
Exchange Commission and the American Institute of Certified Public Accountants.
Such standards are essential to the efficient functioning of the economy because
investors, creditors, auditors, and others rely on credible, transparent, and
comparable financial information. For more information about the FASB, visit our
website at http://www.fasb.org/.