The Financial Accounting Standards Board (“FASB”) issued an exposure draft of a proposed accounting standards update that would require targeted improvements to income tax disclosures in financial statement report (the “Proposed ASU”). The Proposed ASU addresses investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation, income taxes paid information and disaggregated disclosure of income and tax expense by jurisdictions. Here is summary of the changes contained in the Proposed ASU:
Income Taxes Paid
The Proposed ASU would require that all entities disclose the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid on both an interim and annual basis.
Rate Reconciliation
The Proposed ASU would require public business entities on an annual basis disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the statutory tax (that is, pretax income or loss multiplied by the applicable statutory tax rate). The specific categories include state and local income tax; foreign tax effects; enactment of new tax laws; effect of cross-border tax laws; tax credits; valuation allowance; nontaxable or nondeductible items; and change in unrecognized tax benefits.
For entities other than public business entities, the Proposed ASU would require qualitative disclosure about specific categories of items and individual jurisdictions that result in a significant difference between the statutory tax rate and the effective tax rate.
Disaggregated Disclosure
The Proposed ASU would require all entities to disclose pretax income (or loss) from continuing operations disaggregated between domestic and foreign jurisdictions and disclose income tax expense (or benefit) from continuing operations, disaggregated by federal, state, and foreign taxes.
Transition and Effective Date
The Proposed ASU would be applied on a retrospective basis, that is, as of beginning of the earliest period presented in the financial statements. The effective date of the Proposed ASU would be determined after the FASB considers stakeholder feedback.
To read the exposure draft of the Proposed ASU, please clink the link below: