On May 14, the FASB issued a proposed Accounting Standards Update (ASU), Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles of ASC 740, Income Taxes, and simplifies income tax accounting in several areas. The proposed ASU is part of the Board’s initiative to reduce complexity in accounting standards.
The proposed ASU removes certain exceptions to the general principles of ASC 740 to reduce the cost and complexity of applying ASC 740. The proposed changes would have the following effects:
Removes the exception to intraperiod tax allocation when there is a loss in continuing operations and income in other components, such as discontinued operations or other comprehensive income (prospective application proposed)
If a foreign subsidiary becomes an equity method investment, the amount of outside basis difference for which deferred taxes were not provided for would no longer be considered “frozen” and a deferred tax liability would be recorded in the period of change (modified retrospective application proposed)
The simplifications proposed by the ASU include:
The proposed ASU is intended to reduce costs and complexity in income tax accounting, while maintaining or improving the usefulness of information provided to financial statement users.
Comments on the proposed ASU are due by June 28, 2019. Stakeholders are encouraged to provide comments on the proposal. The effective date and whether early adoption of the proposed amendments will be permitted will be determined after the Board considers stakeholder feedback.
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