IFRIC 23: Uncertainty in Income Tax Treatments

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Questions and Answers

What must an entity assess when applying paragraph 13 of IFRIC 23?

The internal policies of the organization.

The relevance and effect of a change in facts. (correct)

The financial impact on future periods.

The historical financial statements.

Which event would most likely result in the reassessment of a judgment or estimate?

A change in the organization's management.

An examination by a taxation authority. (correct)

A new general accounting standard issued.

A minor internal policy change.

When should an entity apply IAS 10 according to the provided guidance?

When new financial forecasts are created.

To evaluate whether a change is an adjusting or non-adjusting event. (correct)

When there is a change in the management structure.

To determine the relevance of prior estimates.

Which situation may indicate a different tax treatment needs reassessment?

Differing tax laws applicable to different treatments. Signup and view all the answers

What does an entity NOT need to consider under paragraph 13 of IFRIC 23?

Internal changes in accounting policies. Signup and view all the answers

Which of the following is not listed as a change in facts or circumstances that could trigger a reassessment?

Textual changes in accounting regulations. Signup and view all the answers

What is the primary purpose of applying IAS 8 in this context?

To record changes in accounting estimates due to new information. Signup and view all the answers

Which of these actions by a taxation authority might require an entity to reassess its tax treatment?

Agreeing or disagreeing with the entity’s tax treatment. Signup and view all the answers

What factor does NOT affect the reassessment of a judgment or estimate under IFRIC 23?

The economic impact of tax treatment. Signup and view all the answers

What aspect of uncertain tax treatments does the Interpretation focus on regarding an entity's approach?

Determining separate or combined treatment of uncertainties Signup and view all the answers

How should an entity assess the examination of tax treatments by taxation authorities?

Considering that the authority will have full knowledge of all relevant information Signup and view all the answers

What should an entity consider while determining if an uncertain tax treatment will be accepted by a taxation authority?

The probability that the taxation authority will dispute the treatment Signup and view all the answers

In the context of uncertain tax treatments, what does 'tax bases' refer to?

Value of an asset used to determine taxable profit Signup and view all the answers

When considering multiple uncertain tax treatments, how should an entity read references in the Interpretation?

As a collective group when assessed together Signup and view all the answers

What assumption must an entity make about taxation authorities in relation to their examinations?

They will examine all amounts the entity allows them to view Signup and view all the answers

Which of the following elements is NOT directly addressed in how entities determine taxable profit?

Potential future tax breaks Signup and view all the answers

Which factor should influence how an entity prepares its income tax filings?

Past resolutions of similarly uncertain tax treatments Signup and view all the answers

What does the Interpretation suggest about changes in facts and circumstances related to tax treatments?

They should be continuously monitored and assessed Signup and view all the answers

What is the main purpose of IFRIC 23?

To clarify uncertainty over income tax treatments. Signup and view all the answers

According to IFRIC 23, what should an entity do regarding uncertain tax treatments?

Consider uncertain tax treatments separately. Signup and view all the answers

What does IFRIC 23 require an entity to assess concerning taxation authorities?

The examination by taxation authorities on uncertain treatments. Signup and view all the answers

What is one of the aspects entities must consider under IFRIC 23 when evaluating uncertain tax treatments?

Changes in facts and circumstances. Signup and view all the answers

What is included in the Appendices of IFRIC 23?

Application Guidance and Effective date and transition. Signup and view all the answers

Which of the following aspects is NOT addressed in the scope of IFRIC 23?

Internal corporate tax policy development. Signup and view all the answers

What characterizes an uncertain tax treatment under IFRIC 23?

A tax treatment where its acceptability under tax law is uncertain. Signup and view all the answers

What does the term 'tax treatments' refer to in IFRIC 23?

The treatments utilized by an entity in its income tax filings. Signup and view all the answers

Which entity is responsible for deciding the acceptability of tax treatments under tax law?

The taxation authority, which may include a court. Signup and view all the answers

When should an entity recognize and measure its current or deferred tax asset or liability according to IFRIC 23?

Based on taxable profit, tax bases, tax losses, and tax rates. Signup and view all the answers

How does IFRIC 23 relate to IAS 12?

IFRIC 23 supplements IAS 12 by clarifying uncertainty in tax treatments. Signup and view all the answers

What could affect an entity's accounting for tax assets or liabilities according to the content?

A dispute or examination by the taxation authority. Signup and view all the answers

Which of the following elements is NOT considered when measuring current or deferred tax assets or liabilities under IFRIC 23?

Market fluctuations affecting income. Signup and view all the answers

If an entity decides not to submit an income tax filing, what does this represent?

An uncertain tax treatment. Signup and view all the answers

What potential impact does uncertainty over tax treatments have on financial statements?

It could require adjustments in the reported tax assets or liabilities. Signup and view all the answers

If an entity concludes that it is probable the taxation authority will accept an uncertain tax treatment, what must the entity do next?

Determine tax-related amounts consistently with the tax treatment used in income tax filings. Signup and view all the answers

What must an entity do if it concludes it is not probable that the taxation authority will accept an uncertain tax treatment?

Reflect the uncertainty in determining taxable profit and related tax elements. Signup and view all the answers

When using the 'most likely amount' method, what type of outcomes is it best suited for?

Outcomes that are binary or concentrated on one value. Signup and view all the answers

Which method involves summing probability-weighted amounts in a range of possible outcomes?

Expected value method. Signup and view all the answers

What should an entity do if an uncertain tax treatment affects both current and deferred tax?

Make consistent judgments and estimates for both aspects. Signup and view all the answers

When must an entity reassess a judgment or estimate according to the interpretation?

If facts and circumstances or relevant information changes. Signup and view all the answers

If an entity has determined that an uncertain tax treatment is likely accepted, which of the following is NOT true?

The entity can ignore potential future tax implications. Signup and view all the answers

What is the primary purpose of reflecting the effect of uncertainty in tax-related determinations?

To better predict the resolution of the uncertain tax treatment. Signup and view all the answers

Which scenario dictates the use of the expected value method for determining tax-related uncertainty?

Outcomes vary significantly across a broad range. Signup and view all the answers

What should an entity do if it identifies significant changes in facts and circumstances affecting its tax estimates?

Reassess its previous judgments and estimates. Signup and view all the answers

Study Notes

IFRIC 23: Uncertainty Over Income Tax Treatments

Clarifies IAS 12 application when uncertainty exists regarding income tax treatments.
Addresses whether to consider uncertain tax treatments separately or together, based on which approach better predicts uncertainty resolution. Factors considered include income tax filing preparation and how the taxation authority is expected to conduct examinations.
Assumes taxation authorities will examine amounts they have a right to and possess full knowledge of all related information.
Determines taxable profit (loss), tax bases, unused tax losses, credits, and rates based on the probability of a taxation authority accepting the uncertain tax treatment.
If acceptance is probable, uses the treatment in income tax filings.
If acceptance isn't probable, reflects uncertainty using either the most likely amount or the expected value, depending on which better predicts uncertainty resolution. The most likely amount is suitable when outcomes are binary or concentrated; expected value when outcomes are diverse.
Maintains consistency in judgements and estimates for both current and deferred tax if an uncertain tax treatment affects both.
Requires reassessment of judgements and estimates based on changes in facts, circumstances, or new information. This reassessment follows IAS 8 treatment. IAS 10 applies to changes occurring after the reporting period.
Appendix A gives guidance on changes in facts and circumstances, including examinations by tax authorities, changes in rules, and expiry of examination rights.
Issued by the IASB in May 2017.
References IAS 1, IAS 8, IAS 10, and IAS 12.

Key Definitions (IFRIC 23)

Tax treatments: Methods used or planned for income tax filings.
Taxation authority: Body deciding tax treatment acceptability (including courts).
Uncertain tax treatment: Tax treatment with uncertain acceptance by the taxation authority. Examples include not filing or omitting income.

Applying IFRIC 23

Considers whether each uncertain tax treatment should be assessed separately or in a group. The choice depends on which approach better predicts the outcome.
If assessing multiple treatments together, references to "an uncertain tax treatment" apply to the group.
If a tax authority's acceptance is probable, use its planned treatment in the income tax filings when determining tax amounts.
If a tax authority's acceptance is improbable, reflect uncertainty using either the most likely amount or expected value method depending on the situation.

Appendix A: Application Guidance

Highlights that assessments of changes in facts and circumstances should consider applicable tax laws. Effects may differ for tax treatments under different laws.
States examples of changes in facts and circumstances that might lead to re-assessment:
- Tax authority actions (agreement/disagreement with used treatments, similar treatments used by other entities, settlement amounts).
- Changes in rules by taxation authorities.
- The expiry of a taxation authority’s right to examine a tax treatment.

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Description

This quiz explores IFRIC 23 and its implications on IAS 12 regarding uncertain income tax treatments. It covers how to assess tax positions based on probable acceptance from tax authorities and the evaluation methods to predict outcomes. Test your understanding of the correct application and the factors influencing tax treatment decisions.