The FASB has issued ASU 2023-09, Income Taxes – Improvements to Income Tax Disclosures that is intended to enhance the transparency and decision usefulness of income tax disclosures. The enhanced disclosures are expected to provide users with better information to assess an entity’s tax risks and opportunities.

Disclosure requirements now include consistent categories to be used in the rate reconciliation and greater disaggregation of information in both the rate reconciliation and in regards to taxes paid. Among other things, new disclosures include a rate reconciliation presented in both reporting currency and percentages, separate disclosure of reconciling items greater than 5%, pre-tax income disaggregated between foreign and domestic jurisdictions and income tax expense disaggregated between federal, state and foreign taxes.

These changes apply only to public business entities. Public entities are entities that have issued debt or equity securities or are a conduit bond obligor for conduit debt securities that are traded in a public market, or are required to file financial statements with the Securities and Exchange Commission, or provide financial statements for the purpose of issuing any class of securities in a public market.

For all other entities, the updated requirements include qualitative disclosure about specific categories of reconciling items and jurisdictions that drive significant differences between the statutory and effective rates. Additionally, all entities are required to disclose disaggregated information about cash paid for income taxes along with foreign and domestic pre-tax income and income tax expense disaggregated between federal, state and foreign. Certain other disclosure requirements have been eliminated including certain disclosures related to unrecognized tax benefits in the next twelve months and the cumulative amount of temporary differences when a deferred tax liability is not recognized due to exceptions to comprehensive recognition of deferred taxes related to subsidiaries and joint ventures.

The provisions of this update are effective for fiscal years beginning after December 15, 2024 for public business entities and for fiscal years beginning after December 15, 2025 for all other entities. Early adoption is permitted. The amendments are to be applied prospectively, but retrospective application is permitted.

The full text of ASU 2023-09 can be found here.

Published: 01/03/2024

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