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Proposals to revise and delay statement no. 96 and to clarify offsetting.

The Financial Accounting Standards Board issued an exposure draft that would supersede its Statement no. 96, Accounting for Income Taxes.

In response to employer's complaints that its rules were too restrictive, the board reconsidered Statement no. 96 in an effort to reduce its complexity and address concerns about the criteria for recognizing and measuring deferred tax assets, explained FASB practice fellow John Gribble. In addition, the revised Statement no. 96, also titled Accounting for Income Taxes, is likely to ease the effect of new accounting rules for retiree health benefits on corporate profits.

The new ED would recognize a deferred tax asset for an enterprise's deductible temporary differences and operating loss and tax credit carryforwards. however, a valuation allowance would reduce that asset if it is more likely than not some or all of the deferred tax asset will not be realized.

Also under the ED, a deferred tax liability generally would be recognized for all taxable temporary differences. Deferred tax assets and liabilites would be measured using the marginal tax rate expected to apply to the last dollars of taxable income in future years.

If adopted, the ED would be effective for fiscal years beginning after December 15, 1992, with earlier application encouraged. The deadline for comments is September 6, 1991. Public hearings will be held October 17, 18 and 23.

Delay proposed for Statement no. 96. Another FASB ED, Accounting for Income Taxes--Deferral of the Effective Date of FASB Statement no. 96, would delay the effective date of Statement no. 96 until fiscal years beginning after December 15, 1992. According to FASB assistant project manager Kim Ryan Petron, "Statement no. 96 would otherwise become effective in calendar year 1992, and the board believed it would be inappropriate to require the statement's adoption while a proposal to supersede it is out for comment."

Comments on the proposal are requested by August 16, 1991.

Offsetting recognized amounts. Separately, the FASB also released for exposure a proposed new interpretation, Offsetting of Amounts Related to Certain Contracts, clarifying the circumstances under which amounts recognized for individual contracts can be offset against amounts recognized for other contracts and reported as net amounts.

Generally accepted accounting principles prohibit offsetting assets and liabilities unless a right of setoff exists; that general principle usually is thought of in terms of receivables and payables. According to FASB practice fellow John T. Lawton, "The board was asked to clarify whether the principle also applied to contracts such as forwards, interest rate swaps, currency swaps and options." Under the proposal, the offsetting principle would apply to amounts recognized for those types of contracts.

The proposal, effective for periods ending after December 15, 1991, also would provide an exception to the general principle to permit offsetting of market value amounts recognized for multiple forwards, swaps and similar contracts executed under master netting arrangements.

Comments are requested by September 11, 1991.

Copies of any of these proposals may be obtained by contracting the FASB order department at 401 Merritt 7, P.O. Box 5116, Norwalk, Connecticut 06856, or calling (203) 847-0700.
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Publication:Journal of Accountancy
Date:Aug 1, 1991
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