As published on tax.thomsonreuters.com, Monday 5 December, 2022.
The FASB on Nov. 30, 2022, voted to issue a proposal during next year’s first quarter that would require companies to provide greater insight into income taxes they pay in the U.S. and in foreign countries, for both interim and annual reports. If finalized, new rules will be issued later in 2023, according to the discussions.
The board plans to propose that companies should break down the income taxes they paid to federal, state and foreign authorities in a reporting period, detailing where they paid more than 5 percent of total taxes and the dollar amount. Companies would provide the disclosures by federal, state and foreign for both annual and interim reporting, and annually by individual jurisdiction.
“I think the board has come a long way on this project over the years that we have been working on it,” FASB member and academic Christine Botosan said. “Nobody’s going to be completely happy…I think where we’ve ended up though is that everybody is going to get some things that they felt were very important to be satisfied and that gives me comfort that we’ve probably struck a reasonable balance between cost and benefit.”
The jurisdictional disclosures would fall under Topic 740, Income Taxes, and would include rate reconciliation information by specific categories, according to the discussions. The guidance would shed light on the impacts of taxes on profits, including risks and opportunities both here and overseas. Further, the disclosures would provide investors with better information for making investment decisions, estimating tax rate risks, determining tax rate sustainability, forecasting future cash flows, and asking appropriate and efficient questions to management.
“I believe this is a major step forward for users – jurisdictional information is essentially a blind spot for users,” FASB member and analyst Frederick Cannon said. “I think this alleviates that blind spot – so the benefits to the user community and investors is very significant, recognizing that there will be a cost imposed on preparers but I think the benefits outweigh the costs.”
Much of the work for financial statement preparers would surround the time and effort needed to gather the disaggregated information on various occasions, board discussions revealed. But the information would not be tough to get because companies have systems in place that could gather the required data.
The proposal could be issued as early as late February, according to the discussions. Companies will get 75 days to submit comments.
Nitty Gritty Rules about Cash Taxes Paid
Specifically, among disclosures the board voted to require would include:
Retrospective transition should be required for all income tax disclosures, the board agreed. This means that a company would be required to apply the income tax disclosures for all periods presented for comparative purposes.
This article originally appeared in the December 2, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.