Steps toward convergence on income taxes

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28 Jan 2005

The US Financial Accounting Standards Board has posted its Action Alert Newsletter summarising FASB's recent decisions about convergence of FASB and IASB income tax standards with respect to which tax rate to use in measuring deferred taxes: While FAS 109 requires the 'enacted' rate and IAS 12 requires the 'substantively enacted' rate, FASB would amend FAS 109 to clarify that a rate is regarded as enacted if only perfunctory actions are required for a measure to become law. If corporate income is taxed at different rates depending on whether that income is distributed to shareholders, FASB would continue to require measurement of deferred tax assets and liabilities using the distributed rate, while IASB agreed at its January meeting to stick with the IAS 12 requirement to use the undistributed rate.

However, FASB agreed to require disclosure of the difference in the tax expense (or benefit) for the period that would result from the use of the undistributed rate.

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