By Denise Lugo
The FASB will hold a workshop during the second quarter this year to gain more insight about the level of detail public companies should break out in income tax disclosures, an area of its March 2019 proposal that addresses tax jurisdictions and rates, according to board discussions on February 12, 2020.
The workshop would focus on the disaggregation (break out) of the following: pretax income (or loss) from continuing operations; income tax expense (or benefit); income taxes paid; and within the rate reconciliation.
The discussions would include investors and company accountants so that the board can obtain various viewpoints, as well as better gauge potential operational issues, board discussions indicated.
“We received a lot of comments that said the level of disaggregation that we put in the exposure draft is correct; we also received other comments saying it should be expanded country-by-country,” FASB Chairman Russell Golden said. “I think it should be expanded from what was in the exposure draft, but I don’t think it should be expanded solely country-by-country. I think we should focus on jurisdictions because I think that there may be times when a jurisdiction may have a higher tax rate than a certain country,” he said.
The board decided to hold off on making standard-setting decisions about the proposal until after the workshop.
Caught Legislators’ Attention
The workshop decision resulted from FASB discussions about comment letters it received on Proposed Accounting Standards Update (ASU) No. 2019-500, Income Taxes (Topic 740): Disclosure Framework—Changes to the Disclosure Requirements for Income Taxes. The proposal generated 42 comment letters, including from about a dozen U.S. Senators, who wanted them expanded. (See Senate Democrats Push FASB for Expanded Income Tax Disclosure Rules in the October 3, 2019, edition of Accounting & Compliance Alert.)
The changes were proposed after the Tax Cuts and Jobs Act was enacted to remove disclosures that are no longer considered to be cost beneficial or relevant and to add more in other areas. It is part of the FASB’s broader disclosure framework project to improve the effectiveness of footnote disclosures.
ASU 2019-500 is a revision of the FASB’s July 2016 proposal on the same topic.
Companies were asked to comment on whether the revisions would add to or reduce decision useful information, would be operable, auditable, and not impose significant incremental cost.
Several respondents said the amendments would result in more meaningful, effective, and decision-useful information, while others said it would result in less decision-useful information, would not provide additional decision-useful information, or would provide more information that is needed by investors, according to a FASB staff analysis that was presented to the board.
Some financial statement users said the revised proposal falls short of providing the information necessary for them to make sound investment decisions. Others said it would be generally operable and auditable, while others felt there would be added costs without justified benefits.
Most respondents supported the proposed amendment to require the break out of pretax income or loss for continuing operations between domestic and foreign, staff members said.
Conversely, there were certain proposed amendments respondents disagreed with. For example, most respondents disagreed with requiring public business entities to disclose the amounts of federal, state, and foreign carry forwards by time periods of exploration.
There were a segment of responses that gave conditional support contingent on the board requiring further disclosures, staff members also said. For example, “most respondents supported the disclosure of income tax expense or benefit of continuing operations, disaggregated between federal, state, and foreign,” staff said. “However, investors and other respondents wanted the board to expand the disclosure of income tax expense or benefit to require country-by-country financial information.”
For in-depth analysis of the FASB’s guidance for income tax reporting, please see Catalyst: US GAAP—Income Taxes, also on Checkpoint.
Additional analysis of the financial reporting implications of the Tax Cuts and Jobs Act of 2017 can be found on Checkpoint in the Accounting and Auditing Update Service[AAUS No. 2018-01] (January 2018): Financial Reporting and Disclosure Implications of the Tax Cuts and Jobs Act of 2017 and the SEC Accounting and Reporting Update Service[SARU No. 2018-01] (January 2018): The Application of U.S. GAAP in Accounting for the Effects of the Tax Cuts and Jobs Act.
This article originally appeared in the February 13, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.
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