Short-term Convergence — Income Taxes

Date recorded:

Backwards Tracing

The IASB and FASB staff have been jointly working on the 'backwards tracing' issue. Backwards tracing refers to the process of remeasuring, in the current year, the after-tax amounts of gains and losses that occurred and were reported in prior years. In researching the differences between IAS 12 and SFAS 109 on the backwards tracing issue, the Staffs identified that backwards tracing was a subset of a bigger difference between the two Standards, namely intraperiod allocation (i.e. the manner in which the two Standards allocate income taxes to different components of comprehensive income). The Board had an educational session on this issue, consequently, no decisions were made.

During discussions and consideration of the examples prepared by the Staff, the point was made that FAS 109 and IAS 12 requirements are quite similar although the two Standards use different terminology.

There was general consistency of views in that Board members seemed to favour an approach that resulted in items other than income/loss from continuing operations attracting the discrete rate of income tax and the residual being allocated to the continuing operations result.

In concluding, the staff suggested that they prepare a joint paper for consideration at the next meeting, by both the IASB and the FASB, dealing with both intraperiod allocations and backwards tracing with a "simple" solution recommended.

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