United States

Proposed changes to disclosure requirements for income taxes

FINANCIAL REPORTING INSIGHTS  | 

The Financial Accounting Standards Board recently issued a proposed Accounting Standards Update (ASU), Income Taxes (Topic 740): Disclosure Framework – Changes to the Disclosure Requirements for Income Taxes. If finalized, among other requirements, this proposed ASU would modify the current disclosure requirements for income taxes as follows:

  • The following additional proposed disclosures would be required 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 and income taxes paid, each disaggregated between federal, state and foreign
  • The following additional proposed disclosures would be required for public business entities (PBEs):
    • The line items in the balance sheet 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 proposed ASU would modify the existing rate reconciliation requirement for PBEs to be consistent with SEC Regulation S-X Rule 4-08(h), which requires separate disclosure for any reconciling item that amounts to more than five percent of the amount computed by multiplying the income before tax by the applicable statutory federal income tax rate. The proposed ASU also would require an explanation of the year-to-year change in an amount or percentage of a reconciling item.
  • The proposed ASU would reduce diversity in practice regarding the disclosure of carryforwards by explicitly requiring:
    • A PBE to disclose the amounts of federal, state and foreign carryforwards (tax effected before any valuation allowance) 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. A PBE also would be required to disclose the valuation allowance associated with the total tax-effected amounts of federal, state and foreign carryforwards.
    • An entity other than a PBE to disclose the total amounts of federal, state and foreign credit carryforwards and the total amounts of other federal, state and foreign carryforwards (not tax effected), separately for those carryforwards that do not expire and those that do expire, along with their expiration dates (or a range of expiration dates).
  • The proposed ASU would clarify that the disclosure of income taxes paid during the period under ASC 230, Statement of Cash Flows, is required for interim periods.

The proposed ASU is available for comment until May 31, 2019.