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FASB Issues Simpler Rules on Deferred Income Taxes

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Nov 23rd 2015
Staff Writer and Editor AccountingWEB
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Another Financial Accounting Standards Board (FASB) simplification initiative project is in the books.

The accounting rulemaker issued a new standard on Nov. 20 intended to improve how deferred taxes are classified on organizations' balance sheets.

The new guidance – Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes – is part of the FASB's simplification initiative, which targets areas of US GAAP that can be made less costly and less complex for financial statement users, without compromising the usefulness of the information.

The new rules eliminate the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet.  Stakeholders had informed the FASB that the requirement results in little or no benefit to financial statement users and it adds extra costs.

To simplify the presentation of deferred income taxes, organizations will now be required to classify all deferred tax assets and liabilities as noncurrent in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments.

The standard applies to all organizations that present a classified balance sheet.

The new guidance will align the presentation of deferred income tax assets and liabilities with International Financial Reporting Standards. IAS 1, Presentation of Financial Statements, requires deferred tax assets and liabilities to be classified as noncurrent in a classified statement of financial position.

For public companies, the amendments go into effect for financial statements issued for annual periods beginning after Dec. 15, 2016, and interim periods within those annual periods. For private companies, not-for-profit organizations, and employee benefit plans, the amendments take effect for financial statements issued for annual periods beginning after Dec. 15, 2017, and interim periods within annual periods beginning after Dec. 15, 2018.

Earlier application is permitted for all organizations as of the beginning of an interim or annual reporting period.

Related article:

FASB Launches New Initiative to Reduce GAAP Complexity

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