Money
Issue No. 6 - July/September 2002
Article 1020 Challenges Business
Tax matters - keeping you up to date
by Stephen Harvey
New accounting rules dealing with how to account for tax-related matters in your financial statements must be in place by the first day of the next financial year. For most companies this means you only have until 1 July 2003 to do your homework – or call in the experts.
GST may seem a distant memory and tax reform is currently top of mind, but very soon all entities will be faced with another business challenge – the new rules on how to account for income tax. Organisations must recognise these are not just simple changes in Accounting Standards but represent a very different way of thinking about tax effect accounting.
Revised Accounting Standards AASB 1020 and AAS 3 “Income Taxes” require companies to recognise additional tax balances, which could significantly affect profits and the net asset position in the balance sheet. Reported profits will change as the revised Standards permit the tax consequences of certain transactions to be recognised on an acquisition or directly in equity, rather than in the profit and loss statement. Items previously treated as permanent differences may be tax effected.
AASB 1020 is a complex technical change that impacts the whole business. Organisations may need additional resources, new systems and processes. The tried and tested approach of accounting for income taxes – something done by accountants as part of the year-end wrap up – will no longer be enough. The tax effect ‘time bomb’ is ticking. For companies with a June year end the legislation must be applied from 1 July 2002.
To avoid an unnecessary cost burden or an unwelcome late surprise you need to start planning now.
Major impacts
The impacts of the changes to AASB 1020 and AAS 3 are far greater than other recent revisions to Accounting Standards. The new requirements will affect not only the corporate accounting unit, but also people in taxation, budgeting/forecasting, m...
