Vanessa Scott: A Global Appreciation for Tax and Fine Ethnic Cuisine
US Senate Committee on Finance: Tax Reform Options International Issues

FAS 109: Accounting for Income Taxes 101

The Financial Accounting Standards Board’s (FASB) defined mission is to “establish and improve standards of financial accounting and reporting.”  This statement implicitly suggests that there are inefficiencies and problems in the current standards or, maybe more accurately, in the way the standards are applied.  This, unfortunately, is the case for any law, regulation or policy intended to govern a large group of people in a democratic society.  Everyone will apply the rule according to how they see fit, or according to how it benefits their needs. 


For this reason, FASB has had to implement very specific, lengthy rules to govern the appropriate way to account for Income Taxes.  The idea is to make sure that everyone, or most everyone, is on the same page and does things as uniformly as possible.


According to the FASB statement on FAS 109, it establishes:


financial accounting and reporting standards for the effects of income taxes that result from an enterprise's activities during the current and preceding years. It requires an asset and liability approach for financial accounting and reporting for income taxes.


The objective of this rule is assist accounting professionals in applying consistent standards for (a) recognizing the amount of taxes payable or refundable for the current year, and (b) identifying deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an enterprises financial statements. 


The FAS 109 statement provides the following basic principles that must be applied in accounting for income taxes at the date of the financial statements:


a.            A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current year.

b.            A deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carry forwards.

c.            The measurement of current and deferred tax liabilities and assets is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated.

d.            The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.

For more detailed information about this standard and how it applies, visit the or click here for a copy of the FASB Statement of Financial Accounting Standards No. 109.



Feed You can follow this conversation by subscribing to the comment feed for this post.

The comments to this entry are closed.