The FASB Update simplifies the rules for income tax accounting, therefore making it easier for U.S. businesses to keep track of and follow the many complex tax rules and regulations. The Financial Accounting Standards Board-FASB has made two major amendments to the Income Taxes, to simplify tax reporting reduce errors, and enhance compliance. This will surely mean a lot to businesses that struggle with ever-changing tax codes. In this blog, we take a closer look at how the changes impact accounting practices and how outsourcing services can help a business. We also look at some of the frequently asked questions about the FASB Update and some questions on income tax accounting.
Why is the FASB Update so Important for Income Tax Accounting?
-
Simplified Standards: The FASB Update reduces some of the complexity in tax accounting and eliminates unnecessary rules. The consequence is that companies can file financial reports with much more accurate tax positions.
-
Easier Compliance: The new regulations are aligned with Generally Accepted Accounting Principles, thereby allowing companies to implement one set of processes with ease of compliance against both federal and state tax laws.
-
Less Administrative Burden: Smoothening out complicated regulations, such as those on deferred tax calculations, lightens the load on the accounting teams; thus, it automatically cuts the chances of misinterpretation and errors.
-
Enhanced Presentation of Financials: The presentation of financial reports to investors and other stakeholders will be relatively easy and simple to understand. Moreover, with increased clarity, it would be easier to evaluate any company' sliabilities based on tax.
-
Greater Flexibility in Reporting: The update allows flexibility to the enterprises regarding the presentation of deferred tax assets and liabilities. Overall, such customization enhances the quality of the financial reports.
How Does Outsourcing of Accounting Benefit from FASB Update?
-
More Expertise: The outsourcing services of accounting have access to experts who are aware of all the latest standards in accounting, including updates by FASB. This service will keep your business compliant with these requirements with the least internal effort.
-
Speedy Adoption of Changes: Outsourcing companies implement changes to tax rules more efficiently. There are no delays and this could prevent potential compliance problems that may affect financial reporting.
-
Lower Costs: There are lower costs involved when outsourcing accounting instead of in-house accounting. Outside experts retain the complexities of the tax rules and keep your company compliant.
-
Access to Scalable Resources: Outsourcing the service can scale upwards or downwards with the growth of the business or with any modification in tax regulations to keep your tax reporting accurate and current.
-
Focus on Growth and Innovation: Outsourcing, in general, helps any business free up valuable resources that can be used for strategic initiatives and growth rather than wasting time and energy in understanding complex rules.
-
Access to Advanced Technology: This is because the outsourcing firms usually have access to the most up-to-date, state-of-the-art accounting software, which, in this regard, will be able to make such changes - the FASB Update - as quickly and correctly as possible, rather than an in-house team doing it.
-
Better Risk Management: With outsourcing, the risks in connection with non-compliance associated with tax laws are minimal. This team outside ensures that changes, such as that of the FASB update, are applied correctly so that costly mistakes can be avoided.
What does the FASB Update Encompass in Terms of Income Tax Accounting?
-
Consistency with the standards of the Generally: Accepted Accounting Principles The changes implemented by FASB are consistent with Generally Accepted Accounting Principles to make it easier for businesses to follow standardized financial reporting practices.
-
Ease in Deferred Taxes Calculation: Organizations do not necessarily have to incur complex deferred tax calculations. This will minimize the administrative work on the accounting teams' end and perhaps, more importantly, reduce common errors.
-
Full Disclosure of Assets and Liabilities: This update enabled organizations to present their deferred tax assets and liabilities more transparently, therefore making the financial statements easier for internal and external analysis.
-
Accounting Simplification for the Income Tax Benefit of Employee Share Options: The accounting standard changes made the accounting simpler for the tax benefits for employee share options by eliminating some of the complex variables which influence the reporting of such income.
-
Fewer Re-classifications: This reduces the frequency of adjustments to tax accounts, hence saving time and minimizing the chances of confusion in reporting taxes.
-
Simplified Tax Reporting Process: The new FASB requirements avail a more simplified and direct manner of carrying out tax reporting, hence making the process easier for companies.
What Other Benefits Are Companies in the United States Likely to Experience Regarding the FASB Update?
-
Fewer Mistakes in the Financial Statements: This means that businesses will make fewer mistakes while preparing financial statements; thus, the statements will be more accurate and reliable.
-
Lesser Chances of Audits by the IRS: With clearer rules on taxes, companies also minimize the chances of being audited or fined by the Internal Revenue Service, which is not only too costly but also time-consuming.
-
Smoother Tax Planning: The FASB Update makes it easier to plan taxes for the businesses, mainly concerning long-term tax strategies. Businesses are allowed to allocate their resources more appropriately.
-
More Investor Confidence: When the financial statement of a company is far easier to read and more accurate, then investor confidence in that company automatically increases. Investors like seeing everything transparently, including something as big as tax liabilities.
-
Increased International Compliance: For companies operating globally, the FASB changes would bring U.S. tax accounting practices closer to international norms and make the compliance process more seamless on a cross-border basis.
-
Less Need for Training: The simpler tax rules will imply businesses do not have to invest time and resources in training accounting personnel on complex deferred tax calculations.
-
Increased Flexibility in Tax Strategies: This presentation change gives immense flexibility to the companies in presenting deferred tax assets and liabilities and thus, can allow their business houses to adopt strategic tax planning accordingly.
Why U.S. Businesses Should Outsource Tax Accounting After the FASB Update
-
Expert Knowledge of FASB Changes: The outsourcing firms will have employees comprising experts in following regulatory changes and ensure that your business is compliant with updated tax rules and regulations.
-
Full-Service Financial Reporting: In this way, outsourced tax accounting ensures that your financial reports are comprehensive, accurate, and conform to new standards put in place by FASB.
-
Cost Savings on Tax Preparation: Outsourcing frees you from the costly resources needed by in-house accounting when dealing with updates concerning FASB.
-
Reducing Administrative Overhead: Transferring the responsibilities of tax accounting to a remote team allows a business to free up valuable internal resources for strategies focused on growth rather than managing tax compliance.
-
Access to Global Talent: Outsourcing opens the door to some of the best accounting talent worldwide at sometimes a fraction of the cost involved in maintaining an in-house team.
Conclusion
The Update from FASB does bring simplification and clarity to a world that seems to be complex and confusing-income tax accounting. These changes can enable entities to reduce their administrative burdens and improve their compliance while making financial reporting more transparent. All US businesses, large or small, should become conversant with the new rules to avail themselves of the benefits accruing from these updates. One of the efficient ways to manage such changes is through the usage of accounting outsourcing services. This would manage compliance and financial reporting for you, thus keeping your internal people free to focus on strategic growth.
Are you in search of professional tax accounting services? FINO Partners undertakes complete accounting outsourcing, right from the preparation of a tax compliance program to provide financial reporting. This will keep your business updated with all the latest FASB regulations. Let FINO Partners manage your accounting while you apply your efforts to strategically grow your business.
