FROM

THE

TAX

ADVISER

TAX ACCOUNTING

How Will IFRS

Affect Tax Practitioners?

any companies are in the early stages of considering whal impact ihe transilion to Inlernational Financial Reporling Standards (IFRS) from U.S. GAAP
will have on financial reporting. However, are they
also (hinking about the impact it will have on tax repotting? While
practitioners may have focused on the effect that IFRS's elimination of UFO would have, other tax accounting implications
must be considered.
Panesls at SEC roundtables in December 2007 generally
agreed thai U.S. domestic companies registered wilh ihe SEC
should be required to lile IFRS financial statements at some point
in the future and ihat ihe SEC should establish a time frame lor
impiementing the requirement. Accordingly, it appears thai IFRS
is Coming and may be replacing GAAP in the future.

IMPACT ON TAX ACCOUNTING

METHODS
The particular methods of accounting a company uses have many effects outside of financial
statements. Consequently, convening financial
statements from one reponing standard to
another will have broad implicatioas beyond
just financial (book) accounting.
It will be important for tax return preparers to understand any differences between ihe
old book reponing method and the IFRS
reponing meLhod to ensure the proper treatment for tax reponing purposes. Thus, along
with retraining preparers of fmancial stalemcnts in a new book accounting meibod,
companies will need to ensure that internal
users of financial accounting information, such
as the tax depanment, understand the nuances between the different book methods. Generating awareness will be especially
imponani in the year of change because some effects of the conversion may be recorded in equity
Consider, for exampie, items Lhat are currently treated the same
for book and tax purposes. If the book treatment changes as a result
of implementing a new IFRS method, companies would need lo
deiennine how to continue using the historical tax method- This
may lead to several questions:
Is there a financial conformity rule ihat needs to be followed
under tbe tax law?
100 Journal of Accountancy June 2008

Can the historical tax method be continued, or will the new

book method omit information needed to produce the historical lax method?
Does the company have the information available to compute the book/tax differences?
Is the new book method an acceptable method for tax reponing purposes?
Depending on the answers to these questions, companies may
need lo file Form 3115, Appiication or Change in Accounting Method,
to change some historical tax methods.

CONCLUSION
It is likely diat any global accounting standards that the U.S. may
transition to in ihe future will be dilfcrent from ihe IFRS that exisls
today. Ongoing convergence efforts could continue to iessen the differences and may ease some of the anticipated
burden. Nevenheless, lax praciitioners need to
Stan thinking now about the tax implications of
ihe transition.
For a detailed discussion of the issues in this
area, see "IFRS Is Coming: What Does This
Mean for Tax?" by Christine J, Newell, CPA,
and Frank J. Kalis Jr., CPA, m the June 2008
issue of The Tax Aciviser
Alistair M. Nevius, editor-in-chief
The Tax Adviser
Also look for anieles on the following topics in Lhe June 2008 issue of The Tax Adviser.
m A !ook at how final regulaiions might
apply the Knight "commoriiy incurred" lesi for
deducUbiliiy of trust administrative costs.
Tools for tax planning for foreign nationals.
A report on single-employer qualified plans.

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