Transcript No Slide Title

FAS 109 and the International
Financial Reporting Rules
Chicago Tax Club
June 26, 2008
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©2005 Deloitte & Touche LLP
Presenters
– Rick Bodnum – Partner, Deloitte Tax LLP, Chicago
– Maggie Zellers – Partner, Deloitte Tax LLP, Chicago
– Jon Oleksyk – Partner, Deloitte Tax LLP, Chicago
– Joe Fahndrich – Manager, Deloitte Tax LLP, Chicago
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©2006 Deloitte & Touche LLP. Private and confidential
Keep in Mind
• The views expressed do not necessarily
represent Deloitte & Touche LLP or
Deloitte Tax LLP policy
• The outcome of any specific matter depends upon
the specific facts and circumstances in which the
matter arises
• The views expressed cannot be relied upon as
accounting or tax advice
• Check with a qualified advisor before taking
any action
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FAS 109: A Reminder on Why it Matters
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Why it Matters – Example (Facts)
• Mr. Bigbucks wants to purchase Without 109 Corporation.
• He reviews the balance sheet of Without 109 Corporation and offers to
purchase the company from Mr. Seller for its net book value of $400.
• The offer is accepted.
• Without 109 Corporation never implemented FAS 109.
Fixed Assets
Total
$1,000
Bank Loan
______
Equity
$ 1,000
Total
$ 600
400
$1,000
Additional Facts:
• Assume the tax rate is 40%
• The tax basis of fixed assets if $0 due to accelerated depreciation.
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Why it Matters – Example (Facts – cont.)
• The day after the purchase is complete, Mr. Bigbucks decides to sell all
the fixed assets for $1,000 (the net book value).
• He expects to use the proceeds to repay the bank loan and have $400 to
buy inventory.
• His accountant informs him he will need to use the remaining $400 to pay
the taxes resulting from the $1,000 gain on sale of the fixed assets.
• Mr. Bigbucks calls Mr. Seller and claims that the financial statements of
Without 109 Corporation were incorrect and he will be hearing from his
attorney, F. Lee Fasbey.
• He believes he should have been able to sell all the assets of the
company at book value, pay all the liabilities and have cash remaining
after the sale equal to equity.
• Instead, all the assets are sold and no net cash is remaining.
• You are Mr. Bigbuck’s consultant.
• Briefly explain what is missing from the financial statements.
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Why it Matters – Example (Basis
Difference)
Fixed assets
Book
Tax
Book > Tax
$1,000
$ 0
$1,000
Tax rate
40%
Deferred tax liability required, not recorded
$ 400
Journal Entry:
Deferred Tax Expense
Deferred Tax Liability
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$ 400
$ 400
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Why it matters – Example (Solution)
• The book basis of the fixed assets of Without 109 Corporation are $1,000
higher than the tax basis.
• The financial statements of Without 109 Corporation are missing deferred
taxes.
• The future tax liability of $400 associated with the tax gain in excess of the
book gain needs to be recorded on the financial statements, and equity needs
to be reduced to zero. This liability should have been accrued as the
accelerated depreciation was taken with the offsetting debits to deferred tax
expense.
• The revised balance sheet is shown below:
Fixed Assets
$ 1,000
Bank Loan
$ 600
Deferred Taxes
Equity
Total
8
$ 1,000
Total
400
0
$ 1,000
©2006 Deloitte & Touche LLP. Private and confidential
FAS 141(R)
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©2005 Deloitte & Touche LLP
Considerations – Business Combinations
• When does it matter?
– When you acquire a business
• What matters?
– Is the acquisition taxable or non-taxable
• Why does it matter?
– To correctly state the company’s deferred balances
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General Accounting Rules
• APB No. 16, Business Combinations
• SFAS No. 109, Accounting for Income Taxes
• SFAS No. 141, Business Combinations
• SFAS No. 141R, Business Combinations
– effective for years beginning after 12/15/2008
• SFAS No. 142, Goodwill and Other Intangible Assets
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SFAS 109 Guidance
• Business Combinations – ¶30
• Appendix A – ¶127- ¶138
• Appendix B
– Business Combinations – ¶259
– Nontaxable Business Combinations – ¶260
– Taxable Business Combination – ¶261 and ¶262
– Carryforwards – Purchase Method – ¶264 – ¶267
– Subsequent Recognition of Carryforward Benefits –
Purchase Method – ¶268 and ¶269
• Exceptions – ¶9(d)
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SFAS 141(R)
• Fundamental principles of the acquisition method
– Recognition principle - The acquirer recognizes all of the assets acquired
and all of the liabilities assumed
– Measurement principle - The acquirer measures each recognized asset
acquired and each liability assumed and any non-controlling interest at its
acquisition date fair value
– Notable exceptions include deferred tax assets and liabilities, unrecognized tax benefits and related indemnities
• Effective date
– Fiscal years beginning after December 15, 2008
• Transition
– Prospective application for transactions consummated after the effective
date, with an exception for two of the several changes related to income
taxes
• Future adjustments to income tax recognition, measurement, and changes in
valuation allowances include amounts related to transactions consummated
before the adoption of Statement 141(R)
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New FAS 109 ¶30
The effect of a change in a valuation allowance for an acquired entity’s
deferred tax asset shall be recognized as follows:
a. Changes within the measurement period that result from new
information about facts and circumstances that existed at the acquisition
date shall be recognized through a corresponding adjustment to
goodwill. However, once goodwill is reduced to zero, an acquirer shall
recognize any additional decrease in the valuation allowance as a
bargain purchase in accordance with paragraphs 36–38 of Statement
141(R).
b. All other changes shall be reported as a reduction or increase to income
tax expense (or a direct adjustment to contributed capital as required by
paragraph 26).
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FAS 141(R) – Business Combinations
Applicable to Transactions Completed
in years beginning after 12/15/2008 (cut off)
12/15/2008
Therefore - old transactions are not affected
but for one paragraph related to
income taxes (par. 77 - see next slide)
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Measurement Period
Q shows
FIN 48 of $100
VA of $500
Q shows
FIN 48 of $80
VA of $550
If due to post 02/15
"event" then to provision
If to "fix" 02/15 balance
then to G/W
12/08
03/09
06/09
09/09
12/09
(1)
(1)
(1)
(1)
02/15/09
03/10
02/15/10
Measurement period cannot exceed 12 months but
can be shorter
Must explain what is incomplete
(1) Q's should note that VA and FIN 48 are not yet complete
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FAS 141(R) – Tax Basis Uncertainties and
Release of VA
77. For business combinations in which the acquisition date was before the
effective date of this Statement, the acquirer shall apply the requirements
of Statement 109, as amended by this Statement, prospectively. That is,
the acquirer shall not adjust the accounting for prior business combinations
for previously recognized changes in acquired tax uncertainties or
previously recognized changes in the valuation allowance for acquired
deferred tax assets. However, after the effective date of this Statement:
a. The acquirer shall recognize, as an adjustment to income tax expense
(or a direct adjustment to contributed capital in accordance with
paragraph 26 of Statement 109), changes in the valuation allowance
for acquired deferred tax assets. 1
b. The acquirer shall recognize changes in the acquired income tax
positions in accordance with Interpretation 48, as amended by this
Statement. 2
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1
Par. 30/37/268/43 of FAS 109 modified
2
EITF 93-7 nullified
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Valuation Allowances Under SFAS 141(R)
• Current GAAP
– Increases to valuation allowances after acquisition are generally
charged to tax expense
– Decreases to valuation allowances after acquisition (or actual
usage on tax return):
– First, reduce goodwill to zero
– Second, reduce other intangible assets to zero
– Third, reduce income tax expense
• SFAS 141(R)
– Increases to valuation allowances treated the same as under
current GAAP
– Decreases to valuation allowances after acquisition are now
recorded as a reduction to tax expense
• Changes in tax uncertainties and valuation allowances are recorded in
the income statement (discrete items for interim reporting purposes)
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Example - Valuation Allowances
• Assumptions
– Company A acquires Company Z in 2005
– At the date of acquisition, a $100,000 valuation allowance is
established for an acquired entity’s tax benefits
– Goodwill of $200,000 is also recorded at acquisition
– The following changes in the valuation allowance are reported:
– $40,000 reduction in 2006
– $30,000 increase in 2007
Questions:
19
#1
What is the entry to record the change in 2006?
#2
What is the entry to record the change in 2007?
#3
How would this change under FAS 141R?
©2006 Deloitte & Touche LLP. Private and confidential
Example – Valuation Allowances
(Solution)
Question #1 – Journal Entry:
DR
CR
Valuation Allowance
$ 40,000
Goodwill
$ 40,000
Question #2 – Journal Entry:
DR
CR
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Income Tax Expense
Valuation Allowance
$ 30,000
$ 30,000
©2006 Deloitte & Touche LLP. Private and confidential
Example – Valuation Allowances
(Solution)
Question #3 – Journal Entry:
DR
CR
Valuation Allowance
$ 40,000
Income Tax Expense
$ 40,000
Question #3 – Journal Entry:
DR
CR
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Income Tax Expense
Valuation Allowance
$ 30,000
$ 30,000
©2006 Deloitte & Touche LLP. Private and confidential
Uncertain Tax Positions – Prior to FAS 141(R)
• Uncertain tax positions are accrued as part of opening
balance sheet (under FIN 48) and must be specifically
tracked
– Increases after acquisition date go to goodwill
– Decreases:
– Reduce goodwill to zero
– Reduce other noncurrent intangibles recorded in acquisition to zero
– Finally, go to income statement
• Changes should not impact tax expense
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EITF 93-7
• Under existing rules, changes in an acquired entity’s deferred tax
assets and uncertain tax position balances are generally recorded
through goodwill, regardless of whether such changes occur during
the allocation period or thereafter. For example:
On January 15, 2007, Company X acquired 100 percent of Company Y. As part of the
purchase accounting, X recognized a liability associated with an uncertain tax
position.
DR Goodwill
CR
$ 2,000
FIN 48 Payable
$ 2,000
On February 2, 2008, X increased the liability to reflect a change in its best estimate
of the ultimate settlement with the taxing authority. In accordance with EITF 93-7, X
recorded this adjustment as an increase to goodwill.
DR Goodwill
CR
23
FIN 48 Payable
$ 800
$ 800
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SFAS 141(R)
• Statement 141(R) requires that any adjustments to an acquired entity’s
deferred tax assets and uncertain tax position balances that occur after the
initial determination to be recorded as a component of income tax expense.
On January 15, 2007, Company X acquired 100 percent of Company Y.
As part of the purchase accounting, X recognized a liability associated with an uncertain tax position.
DR Goodwill
CR
$ 2,000
FIN 48 Payable
$ 2,000
On February 2, 2009 (assumed post-measurement period under SFAS 141(R)), X increased the liability
to reflect a additional change in its best estimate of the ultimate settlement with the taxing authority. In
accordance with SFAS 141(R), X recorded this adjustment as a component of income tax expense.
DR Income Tax Expense
CR
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FIN 48 Payable
$ 800
$ 800
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Components of Goodwill
• If there are differences between the book and tax basis of the first
component of goodwill in future years, a temporary difference is
created and a deferred tax liability or asset is recognized
• However, no deferred tax asset or liability is created for the second or
“remainder” component (¶262)
• If the remainder component is tax deductible in future periods (i.e., tax
deductible goodwill > book goodwill), when the tax benefit is realized
on tax return it:
– First, reduces financial reporting goodwill to zero
– Second, reduces other noncurrent intangible assets to zero
– Third, reduces income tax expense
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Purchase Accounting
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Goodwill DTA – FAS 141(R)
• Deferred tax assets should be recognized as part of the
acquisition accounting if tax deductible goodwill exceeds
goodwill recorded as part of the acquisition accounting.
• Setting up DTA requires a simultaneous equation because
goodwill is a residual asset for financial reporting (example
in ¶263)
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Business Combinations - Transaction Costs
141
Transaction Costs
Capitalized
141(R)
Expensed
• Under FAS 141, there commonly was a purchase accounting
question related to “what to do” with the tax benefit related to
transaction costs deducted for tax but capitalized for book (with
tax usually being able to deduct a subset of the total).
• Under FAS 141(R), purchase accounting question will be how to
do tax accounting for amounts expensed for book but potentially
capitalized for tax into either Section 197 or stock basis – (the
problem is the opposite of the historical problem)
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Business Combinations –
Transaction Costs: Initial Thought
Prior to Closing
• DTA is recognized in periods prior to close since the closing
of a transaction should not be contemplated (no
transaction = “busted transaction” = full deduction)
At Closing
• Bad perm (DTA w/o) if carryover basis transaction for tax
(Par. 34 is the issue with “retaining” DTA since it now
pertains to an outside basis difference)
• No provision consequence from “closing” if a transaction
results in a step-up for tax – the DTA would “attach” to
corresponding Section 197 cost that would be treated as
having an origin related to continuing operations (vs.
being an acquired basis difference affecting G/W)
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Best Practices and Challenges
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Computing the Provision – 10 Steps
1. Identify permanent and temporary differences
2. Compute current payable or receivable
3. Compute return to accrual adjustments
4. Analyze deferred taxes and compute deferred tax
expense or benefit
5. Account for uncertainties
6. Analyze the need for valuation allowances
7. Compute total income tax expense or benefit
8. Reconcile tax accounts and record journal entries
9. Prepare rate reconciliation
10. Prepare financial statement disclosures
Note: The 10-steps are on a jurisdiction-by-jurisdiction basis.
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Fundamentals to Remember
• Accounting for the tax consequences of a transaction or event in the
same period that it is recognized in the enterprise’s financial
statements
• Compute the tax provision by enterprise and by jurisdiction
– Jurisdictions include federal, state and international or non-US
• Assess recognition and measurement of FIN 48 uncertain tax
positions (FIN 48)
• Current provision is the liability expected on the current year tax return
adjusted for any return to accrual adjustment and the impact of FIN 48
• Deferred provision is the change in deferred tax assets and liabilities
– Not necessarily able to measure change based on the balances
shown on the balance sheet
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Fundamentals to Remember (cont.)
Deferred tax assets and liabilities
• Recognize a deferred tax asset for future deductible amounts and loss
or credit carryforwards
• Recognize a deferred tax liability for future taxable amounts
• Measure deferred tax assets and liabilities using the applicable
enacted tax rates
– Measure at the rate expected to apply when the temporary
difference reverses
• Effects of future changes in tax laws or rates are not considered
• Reduce deferred tax assets to the amount “more likely than not” to be
realized with a valuation allowance (contra-asset account)
 Assume all temporary differences result in a deferred tax asset or
liability and then determine if an exception applies
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FAS 109: The Balance Sheet Approach
• Compute the current tax asset or liability (estimating the current year tax
return)
– Same process as preparing the tax return
• Compute the deferred tax asset or liability on the difference between the
book and tax basis of assets and liabilities and tax attributes and
carryforwards
– Deferred tax is the future expected tax effect of temporary differences
and carry forwards
• Adjust the general ledger accounts to computed balances
– Analyze the existing tax accounts, compute the total provision and
adjust balances in all accounts to provision calculations
• Measurement is based upon enacted tax laws and rates
• Comprehensive liability approach considering future operations
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Balance Sheet Approach to Tax Provision
Current Taxes
Rec’vble
Payable
Deferred Taxes
Asset
Tax Provision
Liability
Current
Deferred
Beginning
Ending
…get the balance
sheet correct and …..
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…. the P&L falls
out
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Tax Software Objectives
– Streamline the tax provision process
– Strengthen controls and reporting
– Plan for changes in accounting regulations and ease their impact on
your organization
– Reallocate resources to tax matters strategic to your business
– Integrate finance, provision, and compliance systems
– Improve tax risk management procedures
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FAS 109 Process
Implementation/Process
While a provision software system is designed to provide better
functionality, a company will still need to make sure of the following:
– Implementation
– Data Collection Process is efficient/complete
– Validate Data/Prior year data is input correctly
– System/report functions are designed specifically for the company
– Controls
– Company has process to identify and obtain necessary information that will
be input into system.
– Current year data is input correctly.
Failure to do this will result in a company that will continue to have
©2006 Deloitte & Touche LLP. Private and confidential
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difficulty with their provision process.
Software Selection
FAS109 software selection
– While a majority of companies use Excel, there has been a large shift
to Provision software systems.
– TaxStream is the leader in the provision software system market at
approximately 20% of the market.
– Key Driver (besides Market Ownership) – Tax Return System
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IFRS Tax Update
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Agenda
• IFRS overview
• Overview of IFRS/US GAAP accounting differences
• IFRS/FAS 109 differences
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IFRS Overview
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IFRS – Overview
IFRS (International Financial Reporting Standards) is a set of established
accounting standards promulgated by the London-based International Accounting
Standards Board (IASB) that is gaining accelerated use on a worldwide basis
Key characteristics of IFRS:
 Principals-based approach that places greater emphasis on interpretation and
application of principles, with a particular focus on the spirit of the principle
being applied
 The standards necessitate the assessment of the substance of transactions
and an evaluation of whether the accounting presentation reflects the
economic reality
 There is renewed focus on the need for professional judgment in arriving at
accounting conclusions
 Greater use of fair value as a measurement basis placing emphasis on
obtaining reliable measurements
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The SEC and FASB initiated a process that will likely
culminate in the transition from US GAAP to IFRS
Global Fortune 500
IFRS is quickly gaining worldwide acceptance
as a global standard for financial reporting
300
250
Today
200
 Used in over 100 countries and by
approximately 40% of the Global Fortune 500
150
 Required for listing companies across all EU
countries, starting in 2005
 Adoption date announced by large countries like
Brazil, Canada, and India
100
50
0
2005
2007
U.S. GAAP
IFRS
Other
Tomorrow
 Expected that all major countries will have
adopted IFRS to some extent by 2011
 Convergence of Japan will be substantially
completed
As this graph illustrates, migration
to IFRS is much more prominent
than to US GAAP
 Substantial majority of Global Fortune 500 will
report under IFRS
 U.S. public companies will likely have the option
of using either IFRS or US GAAP by 2011
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Regulatory Developments
 Considerable movement towards mutual recognition of financial
reporting frameworks between the US and the EU
 Recent SEC developments
 Elimination of US GAAP reconciliation for Foreign Private Issuers
using IFRS effective 12/31/07 year ends
 Concept release allowing US companies a choice of IFRS is
gathering support
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IFRS Hierarchy
• In absence of a Standard or Interpretation that specifically
applies to a transactions management should use its
judgment and consider the applicability of the following
sources in descending order
– IASB Standards and Interpretations
– IASB Framework
– Other standard setting bodies with similar conceptual framework
(e.g. U.S. GAAP)
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A “Principle-Based” Approach
• No longer simply understanding the “rules”
• Will need to focus more on…
– The “substance” of transactions
– Evaluate whether the accounting presentation reflects the
“economic reality”
• Renewed focus on use of professional judgment
• Comparability versus uniformity
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Differences between IFRS
and FAS 109
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IFRS Tax Literature
• IAS 12, Income Taxes
– Originally effective 1 January 1998
– Revised in 1999 and 2000
– Amended by IFRS 2, Share-based payments
– To be amended further to reflect convergence issues
• SIC 21, Income Taxes – Recovery of Revalued NonDepreciable Assets
• SIC 25, Income Taxes – Changes in the Tax Status of an
Enterprise or its Shareholders
• There is significantly more guidance on accounting for
income taxes under US GAAP than IFRS
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Tax Accounting Convergence
Key Concepts
Approach between the two accounting standards is similar
– Comprehensive asset/liability approach
– Deferred tax provided on all temporary differences
– Measured at enacted tax rates
– Tax assets reduced to ‘more likely than not’ recoverable
Many differences come from differences in underlying accounting – not
tax accounting
– e.g. Share-based payments
Some differences appear minor and only realised in careful reading of the
applicable pronouncements
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Tax Accounting Convergence
 Tax accounting convergence – latest news:
– The FASB is still grappling with a decision on the planned
August exposure draft and the decision of whether to issue a
revised SFAS 109 or an amended form of IAS 12.
– It also remains uncertain how FIN 48 will factor into the new
guidance. Currently, it appears, FIN 48 will remain in US GAAP
and the IASB plans to amend IAS 37 soon to provide rules
regarding the disclosure of uncertainties relating to income tax.
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IFRS Uncertain Tax Positions
IFRS currently:
IAS 37 requires accrual where liability is “probable” and “quantifiable”
Interest and penalties are excluded from income tax expense
IFRS may not go to a FIN 48 model…
Wait and see mode until exposure draft is released
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Tax Accounting Convergence
Enacted vs Substantively Enacted Tax Rates
Which tax rate?
– SFAS 109: Enacted tax rate
– IAS 12: Enacted or “substantively” enacted
– Substantively enacted would be the stage of passing law where further
stages are administrative (eg in the UK, this would be passing of a bill in
parliament rather than signing by the Queen)
Convergence:
– Both boards have agreed that substantial enactment for
operations in non-US jurisdictions but “enacted” for operations
within the USA. IASB will clarify that “substantial enactment”
means that future steps in the enactment process will not
change the outcome
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Tax Accounting Convergence
Intercompany Transfers of Assets
The sale of an asset between tax jurisdictions is a taxable event that establishes a new
tax base for the asset in the buyer’s tax jurisdiction. The new tax base is deductible on
the buyer’s tax return as the asset is sold outside the group or consumed.
Difference
– IFRS
– Provide tax on temporary difference (i.e. at buyer’s tax rate)
– US GAAP
– follows ARB 51
– Can apply to intra-group sales, transfers and distribution whereby tax basis of the
asset changes as a result of the transfer
– Defer all tax paid by seller and reverse any deferred tax consequences
– Prohibits recognition of a deferred tax asset for tax base difference between the
jurisdictions
– Result is that deferred taxes are recognised at seller’s tax rate on temporary
difference before sale (as if sale had not occurred)
Boards’ decision
– FASB has agreed to amend SFAS 109 to eliminate this exception.
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Tax Accounting Convergence
Foreign Non-Monetary Assets and Liabilities
Difference
– US GAAP exempts deferred tax arising from retranslation of
assets and liabilities from local currency to functional currency
as a result of changes in exchange rates
– No exemption under IAS 12
Boards’ decision
– FASB will remove exemption
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Tax Accounting Convergence
Definition of Tax Base
Difference
– No definition of tax base in US GAAP
– Dependent on the expected manner of recovery under IFRS
Boards’ decision
– Both boards are proposing to adopt a new joint definition of tax
base
– Tax base of an asset determined as amount deductible if asset
were to be sold for carrying value at balance sheet date
– ‘Management intention’ principle to be removed
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Tax Accounting Convergence
Balance Sheet Classifications
Difference
– IFRS
– DTAs not recognised unless ‘probable’ that they will be realized
– All deferred tax assets and liabilities classified as non-current under IAS 12
– US GAAP
– Recognise all DTAs and record valuation allowance if more likely than not that
DTA will not be recognised
– DTA/DTLs must be split between current and non-current
Boards’ decision
– IASB will adopt SFAS109 reporting requirements and asset recognition approach
– IASB has agreed that “probable” means “more likely than not” and will add
explanation to IAS 12
Considerations
– May require changes to process, software, and general ledger accounts
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Tax Accounting Convergence
‘Unremitted Earnings’
More correctly – Investments in subsidiaries, branches and associates,
and interests in joint ventures…
Differences
– Exemption under IAS 12 from recognizing deferred tax on temporary
differences on unremitted earnings if parent can control timing of
reversal and probable that difference will not reverse in foreseeable
future
– SFAS109 prohibits recognition of a DTL for excess of financial
reporting over tax base that is ‘permanent’ in nature
Boards’ decision
– IASB to move to US GAAP wording for exemption
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Tax Accounting Convergence
Changes to Disclosure Requirements
Disclosures required by one standard and not the other will be adopted by both,
including:
– Separate disclosure in tax charge for adjustments in respect of prior year items
(SFAS 109 will adopt)
– Disclosure of amounts and basis for allocation of DTA/DTLs between members
of a group that files a consolidated tax return (IAS 12 will adopt)
– Disclosure of income tax consequences of payment of a dividend where income
is taxed differently if distributed
Additional new disclosures to be adopted by both, including:
– Disclosures relating to intercompany transfers of assets
Considerations
– May require changes to process, software, and general ledger accounts
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Tax Accounting Convergence
Initial Recognition Exemption
Difference
– IAS 12 prohibits recognition of deferred tax arising on initial
acquisition of an asset or liability in certain circumstances
– Under IAS 12 no subsequent movements in these positions are
recognised
– No equivalent under SFAS109
Boards’ decision
– IASB will eliminate exemption
– All assets fair valued on initial recognition and deferred tax
recognized on differences between FV and tax base
– Resulting DTA/DTL included in calculation of purchase discount
allowance
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Tax Accounting Convergence
Intra-period Allocations / Backwards Tracing
 Both IAS 12 and FAS 109 require tax on items taken to equity in the
current year to be allocated to equity. However, standards differ on
current year deferred tax related to an item taken to equity in an earlier
period
 SFAS 109: Changes to DTAs/DTLs originally recorded in equity may be
allocated to income from continuing operations subject to intraperiod tax
allocation rules
– Changes to VA due to change in circumstance about realizability
– Changes in tax law/rate
 IAS 12: Any changes to a DTA/DTL originally recorded in equity are also
recorded to equity except in exceptional circumstances.
 Convergence: IASB will amend IAS 12 to adopt the intraperiod
allocation requirements similar to those contained in SFAS 109.
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Convergence Decisions - Summary
US GAAP Changes
• Intra-group transfers to buyer’s tax rate
• Measurement of deferred tax on translation of foreign non-monetary
assets and liabilities
• Additional disclosure requirements
• Substantively enacted tax rates in foreign jurisdictions
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Convergence Decisions - Summary
IFRS Changes
• Adopt SFAS 109 approach to deferred tax assets
– Define probable as more likely than not
– Record valuation allowance when not realisable
– B/S classification – current vs non-current
• Define tax base – amount that would be realised on sale/disposition
• Delete initial recognition exemption for asset acquisition
• Exemptions from recognizing deferred tax on unremitted earnings
• Allocation of tax to P&L vs equity
• Additional disclosure requirements
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©2006 Deloitte & Touche LLP. Private and confidential