In its ongoing journey to simpler accounting, the Financial Accounting Standards Board has issued another simplification targeting accounting for income taxes. This one tells entities it’s OK to recognize the current and deferred income taxes associated with transfers of assets other than inventory within entities that are related to one another.
GAAP has long prohibited entities from recognizing the tax consequences associated with such asset transfers until the asset in question is ultimately transferred out of the entire organization. That led to some differences in how companies shuffled about those deferred tax consequences as assets moved around, especially when the asset in transfer is an intangible asset, like intellectual property.
