Last month, the International Accounting Standards Board (IASB) finally issued IFRIC 23 Uncertainty over Income Tax Treatments in June 2017 to clarify when and how the liability for uncertain tax treatments should be accounted for by entities applying international financial reporting standards (IFRS).
For annual reporting periods beginning on or after 1 January 2019, IFRIC 23 will require entities to calculate the current tax liability in their financial statements as if the tax authorities were going to perform a tax audit, and the tax authorities knew all the facts and circumstances about the entity’s tax position.
According to mid-tier accounting firm BDO, this could prove a fortuitous development for the ATO, with entities having to disclose key estimates and judgements regarding the determination of uncertain tax positions.
BDO tax partner, Jason de Boer, told Accountants Daily that he expects the ATO to be “very excited” by this development.
“It has been agitating for some time for entities to be required to report tax uncertainties in their financial statements. This is not surprising, as it will give the ATO a roadmap to focus its audit activity,” he said.
“Reporting entities will need to ensure that all of their tax positions are appropriately researched and documented to avoid being inadvertently caught by this new interpretation.”
In preparation for the changes, accountants need to review their clients' tax arrangements and encourage them to make any necessary alterations to ensure compliance with the new requirements moving forward according to Mr de Boer.
“Accountants should be encouraging their clients to undertake a prudential review to identify all relevant tax positions that could fall under IFRIC 23, having regard to open amendment periods – remember that the ATO can go back at least four years,” he said.
“Where a client has not appropriately documented a position, they should be encouraged to do so in advance of the commencement date.”
Mr de Boer said accountants’ clients should also build up a ‘tax positions file’ where a list of tax positions and the evidence supporting them is retained for presentation to relevant stakeholders including boards, audit committees and auditors as required.
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