The European Financial Reporting Advisory Group (EFRAG) and the Financial Reporting Council (the FRC) have published today their Feedback Statement ‘Improving the Financial Reporting of Income Tax’. The Feedback Statement on their discussion paper provides an analysis of comment letters received on this consultation together with their responses to the main issues raised by respondents.
Respondents generally welcomed the Discussion Paper as an introduction to an important debate. Most agreed that the current accounting standard, IAS12, is complex to apply and supported attempts to simplify its requirements. Almost all respondents said that its deficiencies were on both a conceptual and an application level. However, they also felt that the standard is not fundamentally flawed and is generally well-understood by preparers and users of financial statements. A fundamental change to the existing model for the accounting for income tax may therefore add further complexity and may not satisfy user needs. The best way forward would be to address the deficiencies through limited improvements to the standard.
The few respondents that supported a complete rethink of IAS 12 expressed support for the accruals approach outlined in Part 2 of the Discussion Paper. According to them, income tax accounting should be based on a principle that requires tax assets and liabilities to be recognised in accordance with the recognition criteria under the IASB’s Conceptual Framework.
EFRAG and the FRC will now liaise with the IASB on the outcome of the consultation. They will encourage the IASB to address constituents' issues either through amendments to the current standard, or its future research project on income taxes. However, EFRAG and the FRC do not plan to undertake further proactive work on the matter.
EFRAG and the FRC would like to thank all the respondents to the Discussion Paper for their contribution to influencing the development of IFRS.
The feedback statement can be downloaded here.
Notes to editors:
The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. We represent UK interests in international standard-setting. We also monitor and take action to promote the quality of corporate reporting and auditing. We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
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