On December 14, 2023, the Financial Accounting Standards Board (FASB or Board) issued Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09). The amendments in this ASU address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to an entity’s effective tax rate reconciliation and income taxes paid information. However, ASU 2023-09 does not amend the recognition or measurement requirements of Accounting Standards Codification (ASC or Codification) Topic 740 (ASC 740).
Under the ASU, public business entities (PBEs) are required to disclose an annual tabular effective tax rate reconciliation using both reporting currency amounts and percentages, disaggregated into the eight categories specified by the ASU. PBEs are also required to provide further disaggregation within the effective tax rate reconciliation of certain reconciling items, based on a quantitative threshold equal to 5% or more of the amount determined by multiplying income (or loss) from continuing operations before income taxes by the applicable federal statutory tax rate. Entities other than PBEs are not required to provide the numerical tabular effective tax rate reconciliation but instead are required to qualitatively disclose the nature and effect of the specific categories of reconciling items (required for PBEs) and individual jurisdictions that result in a significant difference between the statutory tax rate and the effective tax rate.
The ASU also requires all entities to annually disclose the amount of income taxes paid, net of refunds received, disaggregated by federal (national), state and foreign jurisdiction. All entities are also required to disclose the amount of income taxes paid, net of refunds received, to each individual jurisdiction that comprises 5% or more of total income taxes paid (net of refunds received).
ASU 2023-09 also added an annual disclosure requirement for all entities to further disaggregate income from continuing operations and the related income tax expense from continuing operations by jurisdiction. Specifically, for each annual reporting period, entities are required to disaggregate income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between its domestic and foreign components together with income tax expense (or benefit) from continuing operations disaggregated between its federal (national), state and foreign components.
For PBEs, the amendments in ASU 2023-09 are effective for annual periods beginning after December 15, 2024 (i.e., 2025 for PBEs with calendar year ends). For entities other than PBEs, the amendments are effective one year later.
