Rules governing how to account for income taxes are generally working as intended, although they do little to cut through the complexity, so the accounting review process is moving on to study stock option expensing.

The Financial Accounting Foundation recently completed its post-implementation review of Financial Accounting Statement No. 109, Accounting for Income Taxes. The Financial Accounting Standards Board adopted the standard in 1992 to tell companies how to account for income taxes in their financial statements, especially when financial reporting dates and tax reporting dates don't align neatly. The standard addresses how to reflect estimates that might be refundable or payable in a given year as well as the expected future tax consequences related to events reported in a given financial statement period.

The post-implementation review team said FAS 109, now contained in the Accounting Standards Codification under Topic 740 Income Taxes, adequately resolves the issues that the standard was meant to address. However, the review notes the standard does nothing to cut through the complexity of tax accounting -- and it's not clear whether that complexity is the result of the standard, other factors that have developed since the standard was written, or both. Business and tax law have changed considerably since the standard was written, and U.S. companies have increased their interactions with foreign operations, the review acknowledges, complicating their tax exposures.

The review also concluded investors generally get the information they need to understand the cash effects arising from income tax issues, and the requirements of the standard are clear enough for preparers to apply. The standard had no significant effect on operating or financial reporting practices, and they don't appear to have created any unintended consequences, the review concluded. The team offered no standard setting recommendations following their analysis.

FASB Chairman Russ Golden acknowledged in a prepared statement that income tax accounting remains a complex area of U.S. Generally Accepted Accounting Principles, and FASB will consider the review's findings. FASB plans to provide a formal response to the review in the coming weeks, he said.

With the FAS 109 review complete, FAF's post-implementation review team is moving on to begin a review of Financial Accounting Statement No. 123R, Share-Based Payment, which provided guidance on the controversial requirement to recognize stock options as an expense reducing earnings. FAF said the review team also will initiate a review of FAS 160, Noncontrolling Interests in Consolidated Financial Statements, after it completes the current ongoing review of FAS 157, Fair Value Measurements. FAF said that should take place early in 2014.