Africa’s economic growth accountability and
democracy
Tax implications of
implementing IFRS
Contents
1. Overview of IFRS and tax
2. Status of IFRS implementation
3. Rwanda case study
•
•
•
•
Why change
Steps taken
Challenges
Benefits
4. New terminologies and lines
5. Overview of deferred tax
6. Conclusion.
Overview of IFRSs’ and tax
Tax expense
=
Current tax
+
Movement in
deferred tax
• Current tax – income tax in respect of profits/loss for the
period (Based on local tax laws).
Current tax = taxable income/loss x tax rate
• Taxable income/loss – Accounting profit/loss (based on
IFRS/other framework) after tax adjustments provided for in
the local laws.
• Tax authorities have keen interest on accounting profit
• IFRS vs tax laws
• Deferred tax – calculated based on provisions of IAS 12.
Status of IFRS implementation
Rwanda case study
• Why change
•
Prior to full the adoption of IFRS in Rwanda, the the world bank and IMF commissioned a survey assessment
of the corporate sector accounting, financial reporting, and auditing practices within Rwanda. The survey
showed that
1.
The accounting practices varied from institution to institution e.g. out of a sample of 41 entities 19 did
not apply any principles or standards while 13 applied undefined local legislation or GAAP.
2.
The review of the audited financial statements revealed various compliance gaps.
• Steps taken
XXXX
• Challenges
XXXX
• Benefits
XXXX
Lessons learnt
Adoption of IFRS in any country should be accompanied by
• A revision of tax laws to reflect new line items in IFRSs’
• Sensitization of the tax authorities on the new line items
in FS e.g. deferred tax
• Strengthening of the accounting profession in the country
to avoid part application of IFRSs’
Some accountants opt leave out some standards e.g. IAS 41,
Agriculture.
New terminologies
•
•
•
•
•
•
•
Deferred tax (IAS 12)
Biological assets (IAS 41)
Investment property (IAS 40)
Fair value gains/losses (IAS 39)
Pension assets (IAS 19)
Actuarial gains (IAS 19)
Unrealised exchange gains/losses (IAS 21)
Overview of deferred tax
Principle – recognise deferred tax when recovery or settlement will make tax
payments higher or lower than they would otherwise be
Asset
Recovery
Tax
deductions?
Tax payable?
Liability
Inflow of
economic benefits
(cash)
Settlement
Outflow of
economic benefits
(cash)
Tax relief?
Slide 8
Conclusion