How ASU 2016-16 Changed the Treatment of Intra-Group Asset Transfers

B. Anthony Billings, PhD, and Melvin Houston, CPA, JD

In October 2016, FASB issued Accounting Standards Update (ASU) 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, amending Accounting Standards Codification (ASC) Topic 740. The new standard became effective for public businesses with fiscal years beginning after December 15, 2017, and for all other entities with fiscal years beginning after December 15, 2018. Among other objectives, the new standard seeks to simplify the reporting for intra-group transfers of assets other than inventory. One main consequence of ASU 2016-16 is that intra-group members selling assets are required to record a current tax expense or tax benefit upon asset transfers to other group members; similarly, recipients of the asset transfers are required to record a current tax expense or benefit as well as a deferred tax asset or liability. The new standard is also important for outbound transfers of assets to foreign affiliates. Overall, the new standard promises to have far-reaching effects for the financial reporting of consolidated groups, as it departs significantly from the concept of comprehensive accounting principles of the prior ASC 740.