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FASB Takes Aim at Improving Income Tax Disclosures

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Aug 11th 2016
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The Financial Accounting Standards Board (FASB) has proposed changes to income tax disclosure requirements for organizations’ financial statements.

The changes would apply to all organizations subject to income taxes. Some of the proposed new disclosures would only be required for public business organizations.

The proposed Accounting Standards Update (ASU) would modify existing disclosure requirements and add the following for all organizations:

  • Description of a change in tax law that likely will affect the organization.
  • Income or loss from continuing operations before income tax expense or benefit disaggregated between domestic and foreign.
  • Income tax expense or benefit from continuing operations disaggregated between domestic and foreign.
  • Income taxes paid disaggregated between domestic and foreign, and the amount of income taxes paid to any country that is significant in total income taxes paid.
  • An explanation of what caused a change in assertion about the indefinite reinvestment of undistributed foreign earnings and the corresponding amount of those earnings.
  • The aggregate of cash, cash equivalents, and marketable securities held by foreign subsidiaries.

The following proposed disclosures pertain only for public business organizations:

  • 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. If the unrecognized tax benefits are not presented in the statement of financial position, those amounts should be disclosed separately.
  • 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.

The proposed ASU is part of the FASB’s broader disclosure framework project, which is aimed at improving the effectiveness of disclosures in notes to financial statements by clearly communicating the information that is most important to users of a reporting organization’s financial statements.

Income taxes is one of four areas in which the board is evaluating improvements to existing disclosure requirements. The other areas are employer disclosures of defined benefit plans, fair value, and inventory.

Comments on the proposed Accounting Standards Update are due by Sept. 30. The exposure draft contains instructions on how you can submit comments to the FASB.

The effective date will be determined after the FASB reviews the comments. The FASB also states that the proposed amendments may be reconsidered after comments are received.

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