FASB updates accounting for income taxes

The Financial Accounting Standards Board has released a new Accounting Standards Update aimed at reducing the cost and complexity of accounting for income taxes.

Part of the board’s simplification initiative, ASU 2019-12 removes certain exceptions to the general principles in Topic 740 – “Income Taxes in GAAP,” and means organizations don’t need to determine whether these exceptions apply for a given period:

• The exception to the incremental approach for intraperiod tax allocation;
• Exceptions to accounting for basis differences when there are ownership changes in foreign investments; and,
• The exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses.

The board also expects that it will simplify GAAP for a number of areas, including:

• Franchise taxes that are partially based on income;
• Transactions with a government that result in a step up in the tax basis of goodwill;
• Separate financial statements of legal entities that are not subject to tax; and,
• Enacted changes in tax laws in interim periods.

The changes will be effective for public companies after Dec. 15, 2020, and for everyone else after Dec. 15, 2021, though early adoption is allowed.