How early adoption of SFAS on taxes affects financials

Article Abstract:

Statement of Financial Accounting Standards (SFAS) No. 109, 'Accounting for Income Taxes' (1992), was issued by the Financial Accounting Standards Board to clarify contentious issues in SFAS No. 96, 'Accounting for Income Taxes' (1987). The latter has come under increasing criticism in recent years because of problems associated with its implementation. Among the common complaints leveled against SFAS No. 96 are extensive scheduling and nonrecognition of deferred tax benefits expected to be realized. SFAS No. 109, which became effective for fiscal years starting after Dec. 15, 1992, did not make any changes on the characterization of deferred charges. However, it reached a different conclusion on asset recognition. The impact of the new standard on the financial ratios of companies that have adopted it early is examined.

Accounting, Deferred tax (Accounting)

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A new way to account for income taxes

Article Abstract:

The Financial Accounting Standards Boards's Statement 96, Accounting for Income Taxes, will have a profound effect on the way that US businesses account for and report income taxes. The Statement introduces an asset and liability approach to financial accounting and reporting of income taxes. The changes brought about by the standard include: enacted future tax laws must be considered when computing deferred taxes, recognition of deferred tax assets has been restricted, and tax planning strategies must be considered when estimating deferred taxes. The operating results of companies may be affected by the new Statement.

Tax accounting, Taxation

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