Understanding IND AS 12 – Accounting for Income Taxes

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Understanding IND AS 12 Accounting for Income
Taxes
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• Introduction to IND AS 12 IND AS 12, also known
  as Accounting for Income Taxes, is a standard
  issued by the Institute of Chartered Accountants
  of India (ICAI) that prescribes the principles
  and methods for accounting for income taxes. This
  standard applies to all entities that are
  required to prepare financial statements in
  accordance with Indian Accounting Standards (IND
  AS). The purpose of IND AS 12 is to ensure that
  an entitys financial statements reflect the
  current and future tax consequences of its
  transactions and events. Why is IND AS 12
  important? IND AS 12 is important because it
  provides a framework for accounting for income
  taxes in a way that reflects the current and
  future tax consequences of an entitys
  transactions and events. This helps to ensure
  that the financial statements of a company
  accurately reflect its financial position and
  performance. By requiring companies to recognize
  deferred tax assets and liabilities for temporary
  differences between tax bases and carrying
  amounts of assets and liabilities, IND AS 12
  helps to provide a more accurate picture of a
  companys financial performance and position.
  This standard also requires companies to consider
  the future tax consequences of events that have
  been recognized in their financial statements,
  which helps to provide a more forward-looking
  view of a companys financial health.Read more
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• Moreover, IND AS 12 is important for investors
  and other stakeholders because it helps to ensure
  that financial statements are comparable across
  companies and industries, and that companies are
  following consistent accounting principles when
  it comes to income taxes. This allows investors
  to make informed decisions about their
  investments, and helps to promote transparency
  and accountability in financial reporting. Ads
  byHow does IND AS 12 work? IND AS 12 requires
  companies to recognize deferred tax assets and
  liabilities for temporary differences between the
  carrying amounts of assets and liabilities for
  financial reporting purposes and their tax bases.
  Temporary differences arise when the tax base of
  an asset or liability is different from its
  carrying amount for financial reporting purposes.
  IND AS 12 also requires companies to consider the
  future tax consequences of events that have been
  recognized in their financial statements. This
  includes future tax consequences of unused tax
  losses and credits, as well as the impact of
  changes in tax rates on deferred tax assets and
  liabilities. Key considerations under IND AS 12
  Under IND AS 12, there are several key
  considerations that companies must take into
  account when accounting for income taxes. These
  include Temporary differences Companies must
  recognize deferred tax assets and liabilities for
  temporary differences between the carrying
  amounts of assets and liabilities for financial
  reporting purposes and their tax bases. Temporary
  differences arise when the tax base of an asset
  or liability is different from its carrying
  amount for financial reporting purposes. Future
  tax consequences Companies must consider the
  future tax consequences of events that have been
  recognized in their financial statements. This
  includes future tax consequences of unused tax
  losses and credits, as well as the impact of
  changes in tax rates on deferred tax assets and
  liabilities. Unused tax losses and credits
  Companies must consider the potential tax
  benefits of unused tax losses and credits when
  accounting for income taxes. Changes in tax
  rates Companies must consider the impact of
  changes in tax rates on their deferred tax assets
  and liabilities. This requires companies to
  regularly review and update their deferred tax
  balances to reflect changes in tax rates.
  Judgement and estimation IND AS 12 requires
  judgement and estimation when determining the
  carrying amount of deferred tax assets and
  liabilities, as well as the related valuation
  allowance. Companies must use their best
  judgement and available information to make these
  estimates. Overall, these key considerations
  under IND AS 12 are important for ensuring that
  companies accurately account for income taxes and
  provide a true and fair view of their financial
  performance and position.

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• Disclose required as per IND as 12 Under IND AS
  12, companies are required to disclose
  information related to income taxes in their
  financial statements. The disclosure requirements
  include Current tax assets and liabilities
  Companies must disclose the amount of current tax
  assets and liabilities recognized in their
  balance sheet, as well as the amount of any
  unrecognized tax assets. Deferred tax assets and
  liabilities Companies must disclose the amount
  of deferred tax assets and liabilities recognized
  in their balance sheet, as well as the amount of
  any unrecognized deferred tax assets.
  Reconciliation of tax rates Companies must
  disclose a reconciliation of the effective tax
  rate to the applicable tax rate, as well as an
  explanation of any material differences between
  the two rates. Unrecognized tax benefits
  Companies must disclose the amount of
  unrecognized tax benefits and explain the nature
  of the uncertainties that exist. Unused tax
  losses and credits Companies must disclose the
  amount of unused tax losses and credits, as well
  as any expiration dates or limitations on their
  use. Significant judgement and estimation
  Companies must disclose any significant judgement
  and estimation involved in the measurement of
  deferred tax assets and liabilities, as well as
  the related valuation allowance. Changes in tax
  rates Companies must disclose the impact of
  changes in tax rates on their deferred tax assets
  and liabilities. Transactions and events
  Companies must disclose the impact of
  transactions and events on their income tax
  expense, including the impact of changes in tax
  laws or rates. Overall, these disclosure
  requirements are important for providing
  transparency and clarity around a companys
  income tax accounting and for ensuring that
  investors have the information they need to make
  informed decisions about their investments.
  

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• Conclusion IND AS 12 is an important standard
  that helps companies to accurately account for
  income taxes in their financial statements. It
  requires companies to consider the future tax
  consequences of their transactions and events,
  and to recognize deferred tax assets and
  liabilities for temporary differences between tax
  bases and carrying amounts of assets and
  liabilities. By following the principles and
  methods prescribed by IND AS 12, companies can
  ensure that their financial statements provide a
  true and fair view of their financial performance
  and position. Disclaimer This article
  provides general information existing at the time
  of preparation and author takes no responsibility
  to update it with the subsequent changes in the
  law. The article is intended as a news update and
  author neither assumes nor accepts any
  responsibility for any loss arising to any person
  acting or refraining from acting as a result of
  any material contained in this article. It is
  recommended that professional advice be taken
  based on specific facts and circumstances. This
  article does not substitute the need to refer to
  the original pronouncement.
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