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Tax & AccountingMarch 15, 2023

FASB proposes enhancements to income tax disclosures

By: CCH ARM Editorial

The FASB has released for public comment the proposed Accounting Standards Update (ASU), Income Taxes (Topic 740) – Improvements to Income Tax Disclosures. The proposed ASU addresses requests for improved income tax disclosures from investors, lenders, creditors, and other allocators of capital (collectively, “investors”) that use the financial statements to make capital allocation decisions. The comment deadline is May 30, 2023.

Improving understandability of the tax provision

During the FASB’s 2021 agenda consultation process and other stakeholder outreach, investors expressed concerns that existing income tax disclosures do not provide sufficient information to understand the tax provision for an entity that operates in multiple jurisdictions. Investors currently rely on the rate reconciliation table and other disclosures, including total income taxes paid in the statement of cash flows, to evaluate income tax risks and opportunities. While investors told FASB that they generally find these disclosures helpful, they suggested possible enhancements to better (a) understand an entity’s exposure to potential changes in jurisdictional tax legislation and the ensuing risks and opportunities, (b) assess income tax information that affects cash flow forecasts and capital allocation decisions, and (c) identify potential opportunities to increase future cash flows.

The proposed amendments would address investor requests for more transparency about income tax information, including jurisdictional information, by requiring:

  • Consistent categories and greater disaggregation of information in the rate reconciliation; and 
  • Income taxes paid disaggregated by jurisdiction.

Effective dates

The FASB will determine the effective date and whether early adoption of the amendments is permitted after it considers stakeholder feedback on the proposed amendments. The proposed amendments would be applied retrospectively.

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