No. 2015-75
28 October 2015
To the Point
FASB — proposed guidance
FASB may require additional income
tax disclosures
The Board’s
tentative decisions
would not change
the accounting for
income taxes.
What you need to know
•
The FASB tentatively decided to require additional income tax disclosures of changes
in tax laws, taxes paid, valuation allowances, tax rate reconciliations, deferred taxes
and tax carryforwards.
•
The FASB made these decisions as part of its broader disclosure framework project.
•
Before amending the income tax disclosure guidance, the FASB would need to issue a
formal proposal seeking public comment. The FASB plans to perform outreach on its
tentative decisions on income tax disclosures before issuing a proposal.
Overview
The Financial Accounting Standards Board (FASB or Board) tentatively decided to require
additional income tax disclosures of changes in tax laws, taxes paid, valuation allowances,
tax rate reconciliations, deferred taxes and tax carryforwards.
The FASB made these decisions as part of its broader disclosure framework project. The
disclosure framework project is aimed at improving the effectiveness of disclosures in the
notes to the financial statements by changing the requirements to clearly communicate the
most important information.
As part of the project, the Board is reviewing disclosure requirements for income taxes,
inventory, fair value measurement, defined benefit plans and interim reporting. The Board
made other tentative decisions on income tax disclosures related to foreign earnings and
indefinite reinvestment assertions 1 and unrecognized tax benefits 2 at meetings earlier this
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year. If the FASB decides to pursue changes to today’s income tax disclosure requirements,
it would have to issue a formal proposal and seek public comment on it. The FASB plans to
perform outreach on its tentative decisions on income tax disclosures before issuing a proposal.
Key decisions
Changes in tax laws
Under today’s guidance, entities are required to disclose the significant components of
income tax expense attributable to continuing operations, including adjustments to deferred
taxes for enacted changes in tax laws or rates. 3 The FASB tentatively decided to also require
entities to disclose information about an enacted change in tax law if it is probable that the
change will affect the entity in a future period.
Taxes paid
Today, entities must present or disclose the amount of income taxes paid during the period.
The FASB tentatively decided to require all entities to disclose income taxes paid
disaggregated by domestic income taxes paid and foreign income taxes paid.
Valuation allowances
Entities are currently required to disclose the total valuation allowance recognized for
deferred tax assets and the net change in the total valuation allowance for the year. 4 The
Board tentatively decided to also require that entities provide an explanation of the nature
and amounts of valuation allowances recorded and released during the reporting period.
Tax rate reconciliations
Public entities are currently required to reconcile the income tax expense (or benefit) from
continuing operations to the amount that would result from applying the domestic federal
statutory rate to pretax income (loss) from continuing operations,5 using percentages or
dollar amounts. The estimated amount and the nature of each significant reconciling item
should be disclosed. Nonpublic entities are required to disclose the nature of significant
reconciling items but may omit a numerical reconciliation. 6 All entities are also required to
disclose the nature and effect of any significant matters affecting comparability of
information for all periods presented, if this is not evident from the other disclosures. 7
The FASB tentatively decided to require nonpublic entities to disclose rate reconciliations
consistent with the requirement for public entities. The FASB also decided to require all
entities to disclose individual reconciling items that amount to more than 5% of the amount
computed by multiplying pretax income (loss) by the applicable federal statutory income tax
rate. This change would better align the FASB’s guidance with the Securities and Exchange
Commission’s guidance.8
The FASB also decided to require a qualitative description of items that have caused a
significant change in the rate year over year.
Deferred taxes
Currently, entities are required to separately disclose the totals of deferred tax liabilities,
deferred tax assets and valuation allowances recognized for deferred tax assets. 9 The FASB
tentatively decided to require entities to disclose where these amounts are recorded on the
balance sheet if deferred taxes are not presented as a separate line item.
2 | To the Point FASB may require additional income tax disclosures 28 October 2015
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Tax carryforwards
Under current guidance, entities are required to disclose the amounts and expiration dates of
operating losses and tax credit carryforwards for tax purposes.10
The Board tentatively decided to amend the current guidance to require disclosure of:
•
The amounts and expiration dates of the carryforwards recorded on the tax return
(i.e., not tax effected)
•
The amounts and expiration dates of the carryforwards that give rise to a deferred tax
asset (i.e., tax effected)
•
The total amount of unrecognized tax benefits that offset the carryforwards
What’s next
The FASB plans to perform outreach on its tentative decisions on income tax disclosures before
issuing a proposal. As a result, the Board could decide to revisit these decisions. The Board
will discuss a proposed effective date and transition provisions after performing its outreach.
Endnotes:
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2
3
4
5
6
7
8
9
10
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SCORE No. BB3072
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See our To the Point publication, FASB may add income tax disclosures related to foreign earnings.
See our To the Point publication, FASB may change income tax disclosure requirements related to unrecognized
tax benefits.
Accounting Standards Codification (ASC) 740-10-50-9.
ASC 740-10-50-2.
ASC 740-10-50-12.
ASC 740-10-50-13.
ASC 740-10-50-14.
Regulation S-X, Rule 4-08(h)(2).
ASC 740-10-50-2.
ASC 740-10-50-3.
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3 | To the Point FASB may require additional income tax disclosures 28 October 2015