The Canadian Accounting Standards Board recommended to the International Accounting Standards Board (IASB) in a letter published October 26 that enhanced disclosure requirements are needed with respect to the relationship between tax expenses and accounting profits.
The letter in general responds to an IASB consultation on its strategic direction and financial reporting priorities.
Regarding income taxes, the letter explains that financial statement users are reporting that they are finding it “increasingly difficult to reconcile jurisdictional tax rates in which income is derived to the effective tax rate disclosed in an entity’s financial statements.” Enhanced requirements are necessary, it suggests, if the disclosed effective tax rate is to provide meaningful information to financial statement users.
Accordingly, enhanced disclosure requirements should provide information necessary for users to understand the differences between tax income and accounting profit and associated factors that could affect the company’s cash flows.
The Canadian Accounting Standards Board listed the income tax-related amendment as among its “medium priority” issues. It listed as “high priority” issues concerning climate-related risks, cryptocurrencies, the statement of cash flows, and intangible assets.
Its overall list of priorities paralleled those highlighted by the European Financial Reporting Advisory Group (EFRAG) earlier this month. Both groups included intangibles, crypto, and environmental risks as highest priority, with income tax issues a step lower “medium priority.”
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