The Financial Accounting Standards Board issued an
The ASU requires consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes other amendments to provide more transparency about the income taxes paid by multinationals.
“The new standard responds to calls from investors for more transparent, decision-useful information about a company’s income taxes,” said FASB chair Richard R. Jones in a statement. “It requires enhanced disclosures primarily related to existing rate reconciliation and income taxes paid information to help investors better assess how a company’s operations and related tax risks and tax planning and operational opportunities affect the company’s tax rate and prospects for future cash flows.”
Jones was asked about the new standards during a congressional hearing Tuesday before the House Financial Services Capital Markets Subcommittee. “Our standards are designed to provide investors and other allocators of capital with financial accounting and reporting information for investment decisions,” he said in his opening statement. “Even so, we recognize that other parties may choose to use that information as a starting point for other purposes, including regulating certain industries, taxation and other public policy matters. How and when GAAP information is used, and the investments that are made, is within the discretion of the bodies who choose to use GAAP as a starting point. We are always available to all parties to answer questions about how our standards operate, and we are always open to new ways of increasing participation in our process. History shows that we make the best decisions when we consider all views, which is why stakeholder outreach is at the heart of everything that we do. For our standards to be successful, they must be able to be applied by accountants, audited by auditors and provide unbiased decision-useful information to investors and other allocators of capital.”
The amendments in the update require public companies to disclose on an annual basis specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, if the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate.
Public companies are required to disclose a tabular reconciliation, using both percentages and reporting currency amounts:
a. State and local income tax, net of federal (national) income tax effect;
b. Foreign tax effects;
c. Effect of changes in tax laws or rates enacted in the current period;
d. Effect of cross-border tax laws;
e. Tax credits;
f. Changes in valuation allowances;
g. Nontaxable or nondeductible items; and
h. Changes in unrecognized tax benefits.
The amendments require all entities to disclose on an annual basis the following information about income taxes paid:
1. The amount of income taxes paid (net of refunds received) disaggregated by federal (national), state and foreign taxes; and
2. The amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5% of total income taxes paid (net of refunds received).
For public companies, the standard takes effect for annual periods starting after Dec. 15, 2024. For other entities, the amendments are effective for annual periods beginning after Dec. 15, 2025. Early adoption is allowed for annual financial statements that haven’t yet been issued or made available for issuance.
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