FASB Proposes Improvements to Income Tax Disclosures

The FASB has issued revised proposed Accounting Standards Update (ASU), Income Taxes (Topic 740) – Disclosure Framework—Changes to the Disclosure Requirements for Income Taxes – Revision of Exposure Draft Issued July 26, 2016. The FASB intends the proposed amendments in the draft ASU to improve the relevance of current income tax disclosure requirements to financial statement users. Comments are due by May 31, 2019.

The proposed ASU is a revision of an exposure draft issued the FASB issued in July 2016. That proposed ASU set forth enhanced disclosure requirements for income taxes. It was part of the FASB’s broader disclosure framework project to improve the effectiveness of disclosures in notes to financial statements.

The FASB delayed finalizing the proposal because of potential tax reform. The federal government subsequently passed the Tax Cuts and Jobs Act in December 2017, which substantially changed how U.S. businesses are taxed. As a result, the FASB decided to revise its original proposal.

The new proposed ASU reflects these revisions, as well as stakeholder input on the original July 2016 proposal. The revised proposed ASU would (a) remove disclosures that no longer are considered cost beneficial or relevant; and (b) add disclosure requirements identified as relevant to financial statement users.

Additional Disclosures for All Entities

In additional disclosure requirements, Topic 740, Income Taxes, would require all entities to provide the following disclosures:

  • 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; and
  • Income taxes paid disaggregated between federal, state, and foreign.

Additional Disclosures for Public Entities

Public business entities would also be required to provide the following disclosures:

  • 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;
  • 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.

In addition, among other changes, the amendments in the proposed ASU would eliminate the requirement for all entities to (a) disclose the nature and estimate of the range of the reasonably possible change in the unrecognized tax benefits balance in the next 12 months, or (b) make a statement that an estimate of the range cannot be made.

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