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Details Emerge for Income Tax Disclosure Proposal

The FASB has approved the main points for an upcoming proposal that will ask businesses to give investors more details in their financial statement footnotes about domestic and foreign tax payments. The proposal is slated to include a requirement to provide information about changes in tax law and their effect on the company in the financial statement footnotes.

The FASB at its October 21, 2015, weekly meeting approved the main points for an upcoming proposal that will ask businesses to give investors more details in their financial statement footnotes about domestic and foreign tax payments.

The board’s research staff plans to hold some confidential discussions with businesses and auditors about the package of disclosure rules and then review the feedback with the board in a public meeting before writing a proposed amendment to U.S. GAAP. The board would like to publish the proposal in early 2016.

The proposal is slated to include a requirement to provide information about changes in tax law and their effect on the company in the financial statement footnotes.

The board also said businesses will have to provide footnotes that explain how they reported their deferred tax liabilities, what they paid in foreign and domestic taxes, and how much of their deferred taxes they expect to pay.

The board also agreed that the requirement in ASC 740-10-50-12, Income Taxes — Disclosure , formerly paragraph 47 of SFAS No. 109, will apply to all businesses and no longer be required just for publicly traded companies. The disclosure says companies should reconcile their taxes from continuing operations to the amount of tax they would pay by applying the federal tax rate to their pretax income from continuing operations.

The board also wants companies to provide the amount of tax credits and deferred taxes they are carrying forward from quarter to quarter and year to year. Companies will also be asked to disclose when the tax credits and liabilities will expire.

The amendments are likely to be something of a contentious issue. Investors in public companies usually want management to be more forthcoming about the effective tax rate they face in the U.S. and overseas. For professional analysts and investors, the tax payments provide important information for making forecasts about a company’s earnings and its stock price. Companies are reluctant to divulge any more information than they are legally required to give out.

The FASB proposal is being developed at a time when the debate over the amount of information that should, as a rule, be in footnote disclosures has been heating up.

The different perspectives from investors and companies were evident at the September 29 meeting of the accounting board’s Financial Accounting Standards Advisory Council. Investors pushed for more details in the footnotes. Companies, while they said they favored the FASB’s efforts to improve the transparency of financial reporting, were reluctant to endorse the board’s plan.

Companies have pressured the FASB and SEC for years to scale back disclosure rules and reduce the amount of information they are legally required to give out. Investors have criticized the FASB and SEC responses to these demands because they believe they will lose valuable information for analyzing companies and their stocks.

The FASB project is intended to make the disclosure requirements in ASC 740-10-50, more effective without imposing too many requirements on companies.

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