- The Financial Accounting Standards Board on Wednesday moved forward with a project that is poised to beef up the income-tax information that companies would be required to disclose in financial reports.
- The more stringent standards would make companies disclose income taxes paid on a disaggregated basis to federal, state and foreign entities, according to a source familiar with FASB. Companies would also be required to identify any jurisdiction — such as a country or state — that receives over 5% of its total tax payments. Under current standards, companies aren’t required to provide such breakdowns.
- FASB is also on track to require more explicit reconciliation from companies when their effective tax rate is substantially different than their stated statutory tax rate. The effective tax rate is typically based on what is paid after credits and other offsets.
Improved income-tax accounting is one of the priorities that came out of a lengthy outreach effort spearheaded in 2020 by the then newly arrived FASB Chair Richard Jones. FASB’s effort, which drew more than 500 responses, concluded in June and led to a revised agenda.
Refreshing the income-tax standards had been on the FASB’s wishlist for a number of years prior to Jones’ arrival. In a May speech at Baruch College in New York City, Jones noted that the topic was originally added to the organization’s prioritized technical agenda in 2014.
“Despite two exposure documents, a significant change in tax law, 100 comment letters, and other extensive outreach performed over the years, we still were unable to define a clear path forward,” Jones said at Baruch, noting that investor input was critical to helping revise the project’s objective to focus on upgrading the transparency and usefulness of tax disclosures.
“Investor feedback from the agenda consultation process put us on the path of what I call ‘achievable standard setting’ — and by that, I mean projects that fulfill our mission and which can be completed,” Jones said.
The FASB is on track to deliver a proposed accounting standards update on income taxes by the end of the first quarter of 2023. It will then get feedback from stakeholders and decide whether to make any changes to the proposals before voting on whether to adopt the final updated standards.
At the FASB meeting Wednesday a number of FASB members expressed support for the updated guidance. “This project has been a long time coming,” FASB Member Gary Buesser said. “When I first joined the board the project was more or less dead in the water. I think we’ve made huge strides here and I think it will be very warmly received by investors.”