FASB Seeks Public Comment on Proposed Enhancements to Income Tax Disclosures

Background:

FASB issued the amendments to enhance the transparency and decision usefulness of income tax
disclosures. Right now, investors rely on the Rate reconciliation table and other disclosures, including total
income taxes paid in the statement of cash flows, to evaluate income tax risks and opportunities.

Scope:

The amendments would address investor requests for more transparency about income tax information
through improvements in income tax disclosures. Investors suggested possible enhancements to:

• Better understand an entity’s exposure to potential changes in jurisdictional tax legislation and the ensuing risks and opportunities.
• Assess income tax information that affects cash flow forecasts and capital allocation decisions, and
• Identify potential opportunities to increase future cash flows.

The amendments in this proposed update would apply to all entities that are subject to income taxes.
Certain disclosures are specifically for public business entities.

Amendments in respect of Income Tax Disclosures:

Rate Reconciliation:

Amendments in respect of Public Business Entity:
(1) Entity should disclose following specific categories in the rate reconciliation:

• State and local income tax, net of federal (national) income tax effect,
• Foreign tax effects,
• Enactment of new tax law,
• Effect of cross-border tax laws,
• Tax credits,
• Non-taxable or Non-deductible items, and
• Changes in unrecognized tax benefits.

(2) Entity should disclose separately following reconciling item, if the effect of the reconciling
item is equal to or greater than 5 percent of the amount computed by multiplying the income
(or loss) from continuing operations before tax by the applicable statutory federal (national)
income tax rate:

• If the reconciling item is within the effect of cross-border tax laws, tax credits, and nontaxable or non-deductible items categories, it must be disaggregated by nature.
• If the reconciling item is within the foreign tax effects category, it must be disaggregated by jurisdiction (country) and by nature.
• If the reconciling item does not fall within any of the categories listed above, it must be disaggregated by nature.

Amendments in respect of Entity other than Public Business Entity:
Entities require only qualitative disclosure about specific categories of items and individual
jurisdictions that result in a significant difference between the statutory tax rate and the effective
tax rate.

Income Taxes Paid:

All entities would require to disclose the following information about income taxes paid:

• The year-to-date amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes on both an interim and annual basis, and
• 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 percent of total income taxes paid (net of refunds received), on an annual basis.

SW-Remarks:
These amendments would eliminate the requirement to disclose the cumulative amount of each type of
temporary difference. It also replaced the term public entity, as currently used in, Income Taxes, with the
term public business entity. Besides that, The FASB requests stakeholders to review and provide comment
on the proposed ASU by May 30, 2023. Reference of the amendments can be taken from (fasb.org)

Gaurav Sankhla, Audit Associate, SW India