Biz faces 'dramatic' costs under new standards

Businesses will be hit by dramatic costs, and time and resources imposts, under proposed International Accounting Standards Board

August 27, 2009

Australian businesses will be hit by dramatic costs, and time and resources imposts, under a proposed International Accounting Standards Board (IASB) standard that calls for companies to quantify and disclose their aggressive tax positions, BDO Kendalls says.

Exposure Draft 178, which was proposed by the IASB and if adopted by the IASB will be adopted by the Australian Accounting Standards Board (AASB), calls for companies to assume they will be subject to a tax audit and that tax inspectors will have full access to tax workings in determining their tax provisions.

The company must then disclose the theoretical liability owing to the Australian Tax Office that such an inferred tax audit would be likely to uncover. Australian companies will therefore be required to disclose and quantify their aggressive tax positions.

The adoption of ED178 will bring Australian International Financial Reporting Standards (AIFRS) very closely in line with US General Accepted Accounting Principles (US GAAP) FIN48, implemented in the US.

Wayne Basford, director and audit technical expert at BDO Kendalls, warns that adoption of ED178 holds significant implications for Australian businesses, most of which would not have the resources to comply with its extreme requirements.

Basford, who chairs BDO International’s IFRS Working Party and experienced the implementation of FIN48 in the US, says: "Having audited a number of US companies on the initial adoption of FIN48, I have seen from experience that very few companies have the in-house expertise to complete this work.

"Exposure Draft 178 should not proceed in its current state. It should be withdrawn and redrafted. ED178 is unnecessary, and if implemented could hurt the economy at a time when businesses are seeking to control their costs to survive the economic downturn.

"There is no compelling reason that Australia and the rest of the world should have to fall in line with the United States on this.

"Australian companies will have to reassess their tax returns from the past five years, as well as any overseas operations, and will have to provide a review of transfer pricing positions.

"This will be extremely costly and time consuming."

Basford says very few companies will be able to handle this with in-house resources, and it will cost a "king’s ransom" to comply using consultants and external service providers to quantify the uncertain tax positions.

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