On December 8 and 9, 2016 the Accounting Standards Advisory Forum (ASAF) held its most recent meeting. One of the items on the agenda was Country-by-country reporting. During the meeting it became clear that according to the majority of ASAF members country-by-country reporting on income taxes is not necessary to meet the objective of general purpose financial statements. On January 24, 2017 on the website of the IFRS a summary of the meeting was published.
According to the summary the following ASAF members attended the meeting:
· Andreas Barckow - Accounting Standards Committee of Germany (DRSC)
· Alexsandro Broedel Lopes - Group of Latin American Standard-Setters (GLASS)
· Kim Bromfield - South African Financial Reporting Standards Council (SAFRC)
· Patrick de Cambourg - Autorité des normes comptables (ANC)
· Alberto Giussani - Organismo Italiano di Contabilità (OIC)
· Jim Kroeker - Financial Accounting Standards Board (FASB)
· Sungsoo Kwon - Asian-Oceanian Standard-Setters Group (AOSSG)
· Linda Mezon - Accounting Standards Board of Canada (AcSB)
· Yukio Ono - Accounting Standards Board of Japan (ASBJ)
· Kris Peach - Australian Accounting Standards Board/New Zealand Accounting Standards Board (AASB)/(NZASB)
· Andrew Watchman - European Financial Reporting Advisory Group (EFRAG)
The discussion on country-by-country reporting is summarized as follows in the summary that was published on January 24, 2017 on the website of the IFRS:
“The AASB has been asked to provide guidance as part of the Australian government’s work on the OECD’s initiative to improve tax transparency of multinational corporations. At this meeting the AASB sought the views of ASAF members on proposals to improve the understandability of disclosures to comply with IAS 12 Income Tax (Agenda Paper 10)
In presenting Agenda Paper 10 the AASB representative asked why the Board had decided not to include IAS 12 in its 2017–2021 Work Plan. An IASB staff member explained that, in the light of feedback received in the Agenda Consultation and in the Board’s own research project on income taxes, the Board had concluded that:
(a) stakeholders had little appetite for a fundamental review of IAS 12 now.
(b) no narrow-scope amendment to IAS 12 was worth pursuing at this stage.
(c) although investors were dissatisfied with the quality of disclosures provided about income tax, there was not enough evidence to suggest a need to revise the disclosure requirements of IAS 12. In the staff’s view achieving improvements in disclosure might be achieved more effectively through initiatives such as education and the Disclosure Initiative than through amendments to IAS 12.
The majority of ASAF members did not consider country-by-country reporting on income taxes is necessary to meet the objective of general purpose financial statements. ASAF members noted that the objective of general financial statements is to provide useful information for primary users of those statements. The representative of the DRSC noted that the root cause of tax transparency is not related to financial reporting.
ASAF members made the following additional comments:
(a) the representative of AOSSG noted its appreciation of the AASB’s proactive initiative; however, its other members are not facing the same issue. Research would be needed to establish whether there is a case for amending disclosures in IAS 12 or whether amendments to another Standard, such as IAS 24 Related Party Disclosures could address concerns.
(b) the representative of AcSB suggested that prior to launching standardsetting activities, research should be undertaken on what requirements have already been put in place by regulatory bodies. For example, in certain filings, the US Securities and Exchange Commission requires additional information about taxes paid in jurisdictions where significant operating subsidiaries are located. It was important for companies to report to investors information that would indicate whether they are taking excessive tax risks.
(c) the representatives from EFRAG and AASB questioned whether now is the right time to revise disclosure requirements in IAS 12 ahead of other Standards and ahead of the forthcoming Discussion Paper Principles of Disclosure.
(d) the representative from SAFRC said that the scope of IAS 12 does not include indirect taxes, and thus the disclosure required by the Standard does not provide a full picture of all taxes paid by entities.
(e) the FASB representative supported the view that country-by-country reporting on income taxes is not necessary to meet the objective of general purpose financial statements and questioned whether investors would really understand the information by country-by-country reporting. The FASB representative suggested the disclosures were associated with public policy.
(f) the representative of the ANC stated that it would be important to decide whether the disclosures proposed in the paper were intended for all users, or only for the tax authorities. He commented that there was strong and increasing political pressure to improve disclosure in this area.
(g) the representative of the OIC commented that IAS 12 is old and that it needs rethinking in its entirety, not just in the disclosure requirements.
The IASB members present at the meeting shared the views of the majority of ASAF members that country-by-country reporting on income taxes is not necessary to meet the objective of general purpose financial statements. They also acknowledged that it might be useful to consider in due course whether more can be done to improve the quality of disclosures about income taxes, perhaps through the Disclosure Initiative or through education.”
Click here to be forwarded to the recording of the part of the ASAF meeting of December 8, 2016 that related to country-by-country reporting.
Click here to be forwarded to a Staff Paper on country-by-country reporting as prepared by the Australian Accounting Standards Board (Agenda Paper 10 to the ASAF meeting of December 8 and 9, 2016).
Click here to be forwarded to a presentation on country-by-country reporting as prepared by the Australian Accounting Standards Board (Agenda Paper 10A to the ASAF meeting of December 8 and 9, 2016).
Further information on the Accounting Standards Advisory Forum can be found here.
The summary of the ASAF meeting from December 8 and 9, 2017 as available on the website of the IFRS can be found here.
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