On Mar. 15, FASB updated income tax disclosure standards.
FASB issued Accounting standards update (AUS) to income tax disclosures (Topic 740).
Amended AUS addressed requests for improved income tax disclosures from investors, creditors, lenders that use financial statements to make capital allocation decisions.
Follows 2021 agenda consultation process and stakeholder outreach report, #141973.
The redline version of income tax disclosure (Topic 740) amendments begins on p. 9.
Rate Reconciliation
Public entities must disclose specific categories in rate reconciliation on annual basis.
Provide additional information for reconciling items that meet a quantitative threshold.
In situations where the effect of those reconciling items is equal to/greater than 5% of amount computed by multiplying pretax income/loss by applicable statutory tax rate.
Categories included State income tax, net of federal income tax effect, foreign tax effects, new tax laws, cross-border tax effects, tax credits, and valuation allowances.
As well as nontaxable/nondeductible items and changes in unrecognized tax benefits.
Additionally, specified when a separate disclosure is required for reconciling items.
For State and local category, public business entity must provide qualitative description of jurisdictions that contribute to the majority of the effect of the income tax category.
Public business entities required to provide explanation of reconciling items disclosed.
On an interim basis, public business entities must provide a description of reconciling items that result in significant changes in the estimated annual effective tax rate.
Other entities must provide qualitative disclosure on specific categories of items and jurisdictions that result in difference between statutory tax rate and effective tax rate.
Income Taxes Paid
Must disclose the year-to-date amount of income taxes paid (net of refunds received).
Disaggregated by federal, State, foreign taxes on both an interim and annual basis.
Also, must disclose the amount of income taxes paid disaggregated by jurisdictions in which income taxes paid is equal to or greater than 5% of total income taxes paid.
All entities must disclose income or loss from continuing operations before income tax expense/benefit disaggregated between domestic, foreign or federal, State, foreign.
Eliminated requirement to disclose nature and estimate of range of reasonably possible change in unrecognized tax benefits balance in next 12 months or make a statement.
Removed requirement to disclose the cumulative amount of each temporary difference.
When a deferred tax liability is not recognized because of exceptions to comprehensive recognition of deferred taxes related to subsidiaries and corporate joint ventures.
Consultation
Comments on proposed income tax disclosure amendments are due by May 30, 2023.
Dec. 2023 FASB Final Standards Update
On Dec. 14, 2023, FASB issued final accounting standard update on tax disclosures.
Amendments enhance transparency and decision usefulness of income tax disclosures.
Includes other amendments to improve the effectiveness of income tax disclosures.
Effective for public business entities for annual periods beginning after Dec. 15, 2024.
In addition, effective for other entities for annual periods starting after Dec. 15, 2025.
Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance; should be applied on a prospective basis.
