Guidance for Intra-Entity Transfers of Assets Amended
February 18, 2020
Providing relief for reporting the income tax consequences of an intra-entity transfer, the Financial Accounting Standards Board (“FASB”) just issued Accounting Standards Update No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. Per the Update, a company must disclose in its financial reporting the income tax consequences of an intra-entity transfer of an asset when the transfer occurs. This is a change from existing GAAP, which does not allow the recognition of current and deferred income taxes for such transfers until the asset is sold to an outside party.
The standard does not introduce new disclosure requirements, but the existing requirements may be relevant when reporting the current and deferred income taxes related to an intra-entity transfer of an asset other than inventory. Additionally, the amendments match the recognition of income tax consequences for such transfers of assets other than inventory with International Financial Reporting Standards.
Public companies must apply the amendments to annual reporting periods, including interim periods within, starting after December 15, 2017. All other companies have an extra year to apply the amendments to annual reporting periods (December 15, 2018), and two years for interim periods within annual reporting periods (December 15, 2019). All entities can adopt the amendments early during the first interim period that their interim financial statements are issued.
Companies must apply the amendments on a modified retrospective basis using a cumulative-effect adjustment directly to retained earnings as of the start of the adoption period.