On July 26, 2016, the FASB issued a proposed Accounting Standards Update (ASU), Income Taxes (Topic 740): Disclosure Framework – Changes to the Disclosure Requirements for Income Taxes. The proposed ASU is part of the FASB’s ongoing disclosure framework project which has the objective to improve the effectiveness of disclosures required by U.S. GAAP in the notes to financial statements.
The amendments in this proposed ASU would apply to all financial institutions that are subject to income taxes. The additional disclosures under the proposal would be required for both “public” and “private” business entities. Generally speaking, the proposed changes in disclosures would require organizations to:
- Provide a description of an enacted change in tax law that is probable to have an effect on the reporting entity in a future period.
- Disaggregate certain income tax and loss information between foreign and domestic.
- Provide an explanation of any circumstances that caused a change in assertion about the indefinite reinvestment of undistributed foreign earnings.
- Disclose the aggregate of cash, cash equivalents, and marketable securities held by foreign subsidiaries.
More specifically, under the proposed changes, financial institutions may be required to disaggregate income tax expense (or benefit) from continuing operations between domestic and foreign. In addition, organizations that meet the definition of nonpublic entities will be required to disclose the total amounts of federal, state, and foreign carryforwards (not tax effected) and their expiration dates.
There will be enhanced disclosures for “public business entities” as follows:
- Within the reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period, settlements using existing deferred tax assets separate from those that have been or will be settled in cash
- The line items in the statement of financial position in which the unrecognized tax benefits are presented and the related amounts of such unrecognized tax benefits, with a separate disclosure for unrecognized tax benefits that are not presented in the statement of financial position
- The amount and explanation of the valuation allowance recognized and/or released during the reporting period
- The total amount of unrecognized tax benefits that offsets the deferred tax assets for carryforwards
Key Dates and Call for Comments
Comments are due to the FASB by 30 September 2016, and can be made via the FASB website. The FASB is requesting that stakeholders comment on “the overall effectiveness of the proposals,” including whether or not they agree that:
- The proposed changes would result in more effective, decision-useful information about income taxes
- The proposed disclosure requirements would be operable and auditable
- The proposed disclosures would not impose significant incremental costs
They have also requested that stakeholders provide feedback on the overall effectiveness of the Disclosure Framework project.
The amendments in this proposed ASU would be applied prospectively and the effective date will be determined after the FASB considers stakeholder feedback.