Intra-entity asset transfers
This proposal removes the requirement under which the income tax consequences of intra-entity asset transfers are deferred until the assets are ultimately sold to an outside party. The tax consequences of such transfers would be recognized in tax expense when the transfers occur. This treatment is consistent with IAS 12, Income Taxes. The Board acknowledged that the elimination of this exception in ASC 740 might not reduce the cost entities incur because they would need to track book-tax differences related to those assets. However, the Board believes that the change would better depict the economic effect (e.g., a cash tax payment) of those transfers and would lead to easier application of the general guidance in ASC 740.
The proposed ASU would require a modified retrospective transition, with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. Since the period of adoption would not be comparable to the prior periods presented, entities would need to disclose the nature of and reason for the accounting change and the quantitative effects of the accounting change on the financial statements for the period of adoption.
Balance sheet classification of deferred taxes
Under this proposal, all deferred taxes would be classified as noncurrent. Jurisdictional netting would still be required. The proposed ASU asks constituents who disagree with the proposed change to identify alternatives for presenting deferred taxes in a classified balance sheet and the conceptual basis for those alternatives. Entities would be required to apply the proposed amendments prospectively.
For public business entities, the proposed ASUs would be effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption would not be permitted. Entities other than public business entities would have a one-year deferral and would be permitted to early adopt the standard as long as such adoption is no sooner than the effective date for public business entities.
Comments on the two proposals are due by May 29, 2015. For more information about the proposed ASUs, see the FASB’s Web site.