IASB March 2008

The Board discussed its tentative view expressed in September 2006 that income taxes should be presented as a separate section in each of the financial statements rather than allocated as required by IAS 12 Income Taxes. The Board tentatively decided that the initial discussion document should not include a preliminary view on the presentation of income taxes. Instead, the document should explore and illustrate both views (separate income tax section and income tax allocation) in order to solicit comments on the issue.

The Board tentatively decided that, in addressing the allocation view, the document should discuss whether an entity should allocate income taxes to all or some of the components of comprehensive income. For example, income taxes could be allocated to:

(a) all of the categories and sections in the working format

(b) continuing operations, discontinued operations and items of other comprehensive income, or

(c) only items of other comprehensive income. In addition, the document should discuss whether income taxes on transactions with owners should continue to be charged or credited directly to equity.

The Board decided that, in addressing the non-allocation view, the document should discuss whether that view should extend to income taxes on transactions with owners that are currently charged or credited directly to equity. In other words, whether an entity would recognise those tax amounts in comprehensive income and present them in the separate income tax section. In addition, the document should include the following information that an entity would disclose in the notes if intraperiod tax allocation were to be eliminated:

(a) A numerical reconciliation of the effective income tax rate (income tax expense divided by pre-tax comprehensive income) and the statutory (applicable) rate, and of the effective income tax rate and the ‘current’ effective tax rate (the current portion of income tax expense divided by pre- tax comprehensive income). Alternatively, the reconciliation could be of the corresponding tax amounts rather than the tax rates.

(b) A discussion about each significant reconciling item in
(a) above, focusing on the effect of tax rates in different jurisdictions, and on the transactions or events that influenced effective tax rates and how those factors may affect effective rates in the future.

(c) A discussion about the impact of income taxes on the operating, investing, financing, discontinued operations,
and other comprehensive income categories/sections in the statement of comprehensive income,to the extent not covered in (b). The focus of the disclosure should be on whether income taxes in each category differ from what a user would expect on the basis of the entity’s statutory tax rate. If major differences exist, the disclosure should provide information that allows a user to gauge whether each difference is likely to be maintained or reversed in future periods.