The FASB will publish new accounting standards on income taxes and crypto assets in the middle of December, the Board’s Technical Director Hillary Salo told a press panel late on November 13, 2023.
The standard to revise segment expense disclosures will be issued earlier, “the earliest the last week of November…going into the first week of December,” Salo added. “I’m not going to surprise anybody with a ‘Wednesday before Thanksgiving’ – so no worries.”
Her remarks were in response to a question from Thomson Reuters during the virtual press event—hosted by Financial Executive International’s 2023 Corporate Financial Reporting Insights (CFRI) Conference.
The issue was raised because the three standards will be the last of U.S. GAAP that will be issued this year by the FASB, and there have been much speculation in the accounting profession about them. Other documents planned by the board for publication by year-end will be proposals.
The coming standards were developed because of demand from investors—“people who use the financial statements to make capital allocation decisions and those that work with them to help them make those decisions,” FASB Chair Richard Jones said during an earlier panel at the FEI conference. “That’s the group we’re focused on when we talk about investors and we heard what their priorities were,” he said. “And if you look at our agenda and you look at some of the projects that we’re wrapping up – whether it’s segment reporting, income tax disclosures and disclosure of crypto assets, all of which we expect to issue final standards here in the fourth quarter, those were some of the top projects that those investors pointed out to us.”
Segment Reporting to Take Effect in 2024
The new segment reporting standard will require more public companies to disclose information about significant segment expenses—and more frequently. The standard will require retrospective application and will take effect in 2024 for annual reports and in 2025 for interim reports.
Under the guidance, public companies will be required to disclose in both annual and quarterly periods any significant segment expense that is regularly provided to the chief operating decision-maker (CODM) that is included within the measure of segment profit, and other expenses; a description of the composition and other segment items for each of the reportable segments; and the segment’s profit or loss and assets. All public companies will be required to disclose the title and position of the CODM as well as an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance in deciding how to allocate resources.
Further, public companies that only have one reportable segment will also be required to provide segment disclosures that currently exist in Topic 280, Segment Reporting, as well as those in the new expense disclosures. Today, they do not have to provide those disclosures.
Income Tax Disclosures to Bring Transparency
The standard on income tax disclosures was developed to bring transparency about taxes companies pay both in the U.S. and in foreign countries.
The guidance will enable a company to tell its story about its effective rate reconciliation, how it works, and the factors that influence it. The standard will expand on an existing disclosure on taxes paid, by requiring a company to break down the figures by jurisdictions. This will enable investors to see where there is potentially opportunities and/or risks to that company related to its tax burden, according to board discussions in the past.
The changes received “very positive” feedback from investors, which was “one of the reasons why we took the project on and finalized it so quickly,” Jones said at the board’s Standard-Setting Oversight Committee meeting on November 13. “We focused on information that a company should have, and should underline their existing accounting and providing that in a more standardized and additional detail format to provide investors that information. We’ve heard very positively about that,” he said. “Anytime we touch a project that has the word income tax in it, it gets a lot of passions excited. And to be fair there are some who have an interest in this area for more public policy purposes. And there are others who are focused simply on the capital allocation.”
Jones added that the board had extensive discussions with those who were concerned about the rules “to share that it was an investor-led project based on people who would use the financial information to make capital allocation decisions.” Providing “that insight, that transparency to those folks, it certainly helped, and many of them certainly understand why we have the project at this point in time.”
Rules for Crypto Assets to Require Annual and Interim Disclosures
In relation to crypto assets, the standard will require certain types of fungible crypto assets to be measured at fair value and changes recognized in net income. The assets will be required to be separately presented from other intangible assets on both the balance sheet and the income statement. If an entity receives crypto assets in the ordinary course of business as a payment from a customer or as a donation and those assets are converted nearly immediately into cash, the assets should be presented as a cash flow from operating activities.
Moreover, entities will need to apply the disclosures that are in Topic 820, Fair Value Measurement, as well as additional specific disclosures in both interim and annual periods.
Entities will be required to disclose items like the number of units held, the cost basis, the fair value as well as if there are any restrictions on the sale of those crypto assets and the nature and the remaining duration of that restriction. In annual periods, the entity should provide or disclose a rollforward of crypto activities during the period with certain supplemental information such as historical realized gains and losses.
Proposed Concepts for Measurement Coming Early Next Week
Separately, two new proposals on other topics will also be issued for public comment, according to the board’s technical agenda.
Specifically, a proposal is expected to be issued for public comment early next week on the concept of measurement, a source familiar with the matter said.
The guidance will add new Chapter 6, Measurement, to complete Concepts Statement (CON) No. 8, Conceptual Framework for Financial Reporting. Measurement addresses the concepts for amounts that get recorded in financial reports for items that bring economic benefit—e.g. assets. The conceptual framework is a theoretical guide that is used by the FASB to develop GAAP.
The second proposal is related to induced conversions of convertible debt instruments (an Emerging Issues Task Force issue). The public will be able to weigh in by year-end on the guidance, which is being very narrowly scoped to clarify a reporting issue that stemmed from a prior standard that the board issued.
This article originally appeared in the November 15, 2023 edition of Accounting & Compliance Alert, available on Checkpoint.
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