Earlier this week, the Financial Accounting Standards Board released a proposed Accounting Standards Update (ASU) calling for significant changes in income tax disclosures by public and nonpublic companies.
Perhaps the most significant issue to note is that the comment deadline on the proposal is relatively soon: September 30. Therefore, to avoid a rush trying to analyze the impact of the standard through discussions with your tax department and other business units, your audit firm, and audit committee – and to have sufficient time to draft a constructive comment letter and/or participate in industry association letters, accounting, finance and audit professionals would be well advised to add FASB’s income tax disclosure proposal to your summer reading list.
New Disclosures on Undistributed Foreign Earnings
As noted in FASB’s press release, the proposal, entitled Income Taxes (Topic 740): Disclosure Framework-Changes to the Disclosure Requirements for Income Taxes, “would both modify existing disclosure requirements and provide additional disclosure requirements for income taxes.”
The proposed disclosures include new requirements to:
Disaggregation: domestic vs. foreign
FASB’s proposal would also require disaggregating certain income tax information between foreign and domestic entities. As outlined in KPMG’s Defining Issues, FASB proposes revamped income tax disclosures, the proposed disaggregated disclosures (domestic vs. foreign) include:
Impact of enacted tax law changes
As outlined in FASB in Focus summary published by FASB on the income tax proposal, all entities would be required to provide:
Additional disclosures for public business entities
The proposal would require additional disclosures for public entities – technically, “public business entities” as that term is defined in FASB’s Master Glossary in the Accounting Standards Codification – including:
Tie-in to Disclosure Framework, Materiality Proposals
FASB’s proposed standard on income tax disclosures is part of the accounting standard-setters broader Disclosure Framework project, and relates to last year’s proposals issued by FASB relating to materiality and disclosures. (See our post last year: FASB’s materiality proposal: a big deal.)
FASB states: “The proposal includes language designed to promote an entity’s use of discretion that reinforces that the entity can assess the applicability of disclosure requirements on the basis of whether the resulting information is material, thereby improving the effectiveness of the notes to financial statements.”
KPMG notes, “The proposal aligns with the FASB’s proposed changes to the definition of materiality, which would replace the current definition with a reference to the U.S. Supreme Court definition.”
In meeting its objectives of reducing unnecessary or duplicative disclosure as part of its disclosure framework project, FASB’s income tax proposal references last year’s proposed Concept Statement on qualititative characteristics of financial information, and describes certain disclosure requirements that are reduced or eliminated in the income tax proposal:
Additionally, FASB notes the following additional impacts for public business entities (nonpublic as specified), in that the proposed amendments would:
SEC Disclosure Action
In related news, the SEC recently released its own proposal relating to disclosures; see our post: SEC issues proposal on disclosure effectiveness: aimed at four types of fixes.