PEOPLES DAILY,FRIDAY, AUGUST 16, 2013
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Tax alert
Tax implication of the adoption of the International Financial Reporting Standards (IFRS)-Frank Obaro In line with section 8 of Federal Inland Revenue Service (FIRS) Establishment Act 2007, FIRS issued a draft circular in October 2012 to provide direction to stakeholders on the tax implications of the adoption of the International Financial Reporting Standards (IFRS). IFRS is expected to far have reaching implications on taxpayers, knowing that quoted companies are expected to adopt it, beginning from 2012, other businesses from 2013 while SMEs are to fully adopt the guidelines in 2014. an entity to do the following in the opening IFRS statement of financial position that it prepares as a starting point for its accounting under IFRS:(a) recognise all assets and liabilities whose recognition is required by IFRSs; (b) not recognise items as assets or liabilities if IFRS do not permit such recognition. (a) reclassify items that it recognised in accordance with previous GAAP as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity in accordance with IFRSs; and (d) apply IFRS in measuring all recognised assets and liabilities”. FIRS draft guidelines emphasize that the new net asset based on the accounting balance shall be adopted for minimum tax computation and where dividend is paid from retained earnings, it shall be subject to tax in line with section 19 of CITA. Also the details of recognitions, derecognitions and reconciliation must be forwarded to FIRS by the taxpayer including all adjustments to opening retained earnings. Furthermore entities shall have the option to either completely expense or spread within 3 years the revenue expense component of its cost of conversion to IFRS as first time adopters. All conversion cost (Capital & Revenue) must be verified and confirmed by the Service before it can be allowed as Qualified Capital Expenditure or expense. While any
FIRS–Revenus House
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hese is to give effect to the Federal Executive Council’s acceptance of the recommendation of the Committee on the roadmap for the adoption of IFRS in Nigeria, which places emphasis on the adoption of globally accepted accounting standards by reporting entities. The adoption of International Financial Reporting Standards (IFRS) in a phased transition in a process is to be supervised by the Financial Reporting Council of Nigeria(FRCN) formerly Nigerian Accounting Standards Board (NASB), under the supervision of the Nigerian Federal Ministry of Trade and Investment. Section 55 (1) of the Companies Income Tax Act (CITA), Cap C21,
LFN 2004 requires a company filing a return to submit its audited account with the Service while sections 8, 52 and 53 of the Financial Reporting Council of Nigeria Act, 2011 gave effect to the adoption of International Financial Reporting Standard. This implies that the audited accounts to be submitted to the Service after the adoption of International Financial Reporting Standard shall be prepared in compliance with standards issued by IFRS. It is in line with the above that FIRS has published these draft guidelines on tax treatments to be given to each of the Standards especially where there are deviations from the present Generally Accepted Accounting Practice (GAAP) after the adoption. The objective
is to highlight some salient points in the FIRS draft policy document in alignment with the IFRS guidelines. IFRS 1 FIRST TIME ADOPTION -An entity shall prepare and present an opening IFRS statement of financial position at the date of transition to IFRS. This is the starting point for its accounting in accordance with IFRS. An entity shall use the same accounting policies in its opening IFRS statement of financial position and throughout all periods presented in its first IFRS financial statements. Those accounting policies shall comply with each IFRS effective at the end of its first IFRS reporting period. In particular, the IFRS requires
Alhaji Kabir Mashi, Ag. Eexcutive Chairman, FIRS