The FASB has issued a revised exposure draft, Income Taxes (Topic 740): Disclosure Framework – Changes to the Disclosure Requirements for Income Taxes. The proposed amendments are part of the disclosure framework project, which has an objective to improve effectiveness of disclosures by facilitating clear communication of information that is most important to users. The proposal would remove disclosures that are no longer considered cost beneficial or relevant and add disclosure requirements identified as relevant.
In August 2018, FASB issued Concepts Statement No. 8, Conceptual Framework for Financial Reporting – Chapter 8: Notes to Financial Statements, which identifies a broad range of disclosure requirements for a particular Topic. This revised exposure draft is a result of FASB’s consideration of those concepts as they relate to income tax disclosures. FASB additionally considered in this process the U.S. federal government Tax Cuts and Jobs Act enacted in December 2017. All entities subject to income taxes would be subject to this exposure draft other than certain disclosures that would be required only for public business entities as defined in the Accounting Standards Codification.
Under this proposal, the following additional disclosures would be required by Topic 740 for all entities:
- Income or loss from continuing operations before income tax expense or benefit and before intra-entity eliminations disaggregated between domestic and foreign
- Income tax expense or benefit from continuing operations disaggregated between federal, state, and foreign
- Income taxes paid disaggregated between federal, state, and foreign
Under this proposal, the following additional disclosures would be required by Topic 740 for public business entities:
- The line item in the statement of financial position in which the unrecognized tax benefits are presented and the related amounts of such unrecognized tax benefits
- 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 disclosure of future-oriented information should be limited to the inputs used in the measurements in the financial statements or in the notes to the financial statements. This would eliminate the requirement for all entities to disclose the nature and estimate of the range of reasonably possible change in the unrecognized tax benefits balance in the next 12 months or a statement that an estimate of the range cannot be made.
Currently, public business entities are required to disclose any reconciling items in the rate reconciliation that amount to more than 5% of the amount computed by multiplying income before tax by the applicable statutory federal income tax rate. The proposed amendment would modify the requirement to explain the change in an amount or a percentage of a reconciling item from year to year. The proposed amendment would reduce diversity in practice for public business entities by requiring these entities to disclose the amounts of federal, state, and foreign carryforwards by time period of expiration for each of the first five years after the reporting date, a total for any remaining years, and a total for carryforwards that do not expire, along with expiration dates.
For entities that are not public business entities, a disclosure requirement would consist of disclosing the total amounts of federal, state, and foreign carryforwards separately from those carryforwards that do not expire, along with expiration dates.
Finally, the proposed amendment would remove the requirement to disclose the cumulative amount of each type of temporary difference when a deferred tax liability is not recognized because of the exceptions to comprehensive recognition of deferred taxes related to subsidiaries and corporate joint ventures.
The proposed amendments would be effective prospectively. Further information, such as the effective date and whether early adoption should be permitted, will be determined after the FASB considers stakeholder feedback.
Comments on the exposure draft are allowed until May 31, 2019. A copy of the entire exposure draft is available here.
Readers should not act upon information presented without individual professional consultation.