FASB proposes enhancements to income tax disclosures

By Kevin Brewer

FASB is seeking comments on a proposed Accounting Standards Update (ASU) that addresses requests for improved income tax disclosures from investors, lenders, creditors, and others who use financial statements to make capital allocation decisions. The ASU proposes changes to FASB Accounting Standards Codification Topic 740, Income Taxes.

The proposed enhancements, "primarily related to the rate reconciliation and income taxes paid information, are intended to help investors better assess how an entity's worldwide operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows," FASB Chair Richard Jones said in a news release. The news release explains:

During the FASB's 2021 agenda consultation process and other stakeholder outreach, investors expressed concerns that existing income tax disclosures do not provide sufficient information to understand the tax provision for an entity that operates in multiple jurisdictions. Investors currently rely on the rate reconciliation table and other disclosures, including total income taxes paid in the statement of cash flows, to evaluate income tax risks and opportunities.

While investors said they generally find these disclosures helpful, they suggested possible enhancements to better:

  • Understand an entity's exposure to potential changes in jurisdictional tax legislation and the ensuing risks and opportunities;
  • Assess income tax information that affects cash flow forecasts and capital allocation decisions; and
  • Identify potential opportunities to increase future cash flows.

The proposed amendments address investor requests for more transparency about income tax information, including jurisdictional information, by requiring:

  • Consistent categories and greater disaggregation of information in the rate reconciliation; and
  • Income taxes paid disaggregated by jurisdiction.

Comments on the proposed ASU, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, will be accepted through May 30. Comments can be sent by email to director@fasb.org.

— To comment on this article or to suggest an idea for another article, contact Kevin Brewer at Kevin.Brewer@aicpa-cima.com.

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