Divergence of the Twain from CFO magazine discusses why FASB (Financial Accouting Standards Board) and IASB (International Accounting Standards Board) are at odds. FASB and IASB do not agree on the best way to divide tax benefits between the Income statement and the Stock Holders equity section on the balance sheet. FASB believes their approach would be sufficiently better, but also believes both methods will yield the same result. FASB is unwilling to change its mind as they believe they are the most correct. IASB is locked into their process and also have stated if FASB is unwilling to compromise by way of a modified approach, they will not change to the FASB process.

The IASB approach estimates tax benefits based on the stock price at the end of each reporting period. Using the proposed rule, if the tax deduction is less than or equal to the compensation expense, the associated tax benefits are recognized using the income statement. If the actual or estimated tax deduction exceeds the compensation expense, the excess would be recognized as a change in SE using the balance sheet.

In reality, FASB's process will yield the same final answer. FASB proposes that companies first record an estimate of the tax benefits using compensation expense in the income statement with the mindset that those benefits are actually a tax deduction. At a later time, companies would reconcile the estimate with the actual deduction.