In late 2017, the International Accounting Standards Board made improvements to the International Financial Reporting Standards. The annually issued improvements are part of the IASB’s attempts to clarify accounting language that may be too narrow in scope or possibly misinterpreted in different ways. The revised wording ensures all accounting standards are clear and that there are no conflicts between rules. As an accountant, you need to understand these changes so you can advise your clients accordingly and adopt the new changes into your practice.
Four IFRS standards were narrowly affected by the improvements, including International Accounting Standard (IAS) 12 IAS 12 focuses on the treatment of income taxes, foreign and domestic, that are based on taxable profits. When a company underpays taxes, it is a liability. In the opposite sense, if a company overpays taxes, that’s an asset. This is true for current and past accounting periods. With few exceptions, IAS 12 requires companies to put a deferred tax liability or a deferred tax asset in their books for all differences between taxes owed and taxes paid.
Part of IAS 12 requires that a company recognizes the tax consequences of dividends in its profit or loss. But there is an exception to this rule. To the extent the dividend tax consequences transactions come from a business combination or from an entity recognized outside of profit and loss, the tax consequences are not recorded in profit or loss. Wording about these issues within the full IAS 12 document led to some ambiguities of how certain entities can treat and account for dividends. IASB issued new wording for IAS 12 that clears up these issues. The new wording states that a company accounts for all income tax consequences of dividend payments in the same way.
The new annual improvement to IAS 12 tightens up how companies account for dividends. No longer can one portion of dividends be treated one way, and another portion be treated another way. All dividend tax consequences must be accounted for in the same way.