01 April 2016 FASB moves closer to issuing a proposal on income tax disclosures The Financial Accounting Standards Board (FASB or Board) revisited the tentative decisions it reached at meetings last year on income tax disclosures related to foreign earnings and indefinite reinvestment assertions,1 unrecognized tax benefits2 and other income tax topics.3 Based on outreach the Board and its staff performed, the FASB tentatively decided to add certain disclosure requirements and reverse several of its earlier decisions. The income tax disclosure review is part of the FASB's broader disclosure framework project in which the FASB is trying to improve the effectiveness of disclosures in the notes to the financial statements by changing the requirements to clearly communicate the most important information. As part of the project, the Board is reviewing disclosure requirements for income taxes, inventory, fair value measurement, defined benefit plans and interim reporting. The FASB also directed its staff to perform outreach on a potential disclosure requirement related to indefinite reinvestment assertions about foreign earnings. The FASB plans to issue a formal proposal seeking public comment on changes to the income tax disclosure guidance after the staff completes that outreach. The Board affirmed its prior decision that companies would be required to disclose pretax income disaggregated between domestic and foreign earnings. However, the Board reversed its decision to require companies to disaggregate foreign earnings for a particular country if those earnings are significant when compared with total earnings. The Board tentatively decided to add a requirement that companies disaggregate domestic and foreign income tax expense or benefit. The Board affirmed its prior decision that companies would be required to disclose domestic and foreign income taxes paid and decided to also require disclosure of foreign income taxes paid to any individual country if the amount is significant when compared with total income taxes paid. Companies would be required to disclose undistributed foreign earnings for which they make a new assertion of indefinite reinvestment with an explanation of the circumstances that caused the company to change its assertion. Previously, the Board decided that companies would also disclose undistributed foreign earnings that they no longer assert are indefinitely reinvested with an explanation of the circumstances that caused the company to change its assertion. The Board reversed its prior decisions that all companies would be required to disclose (1) the line items on the balance sheet where deferred taxes are presented and (2) domestic income tax expense on foreign earnings. The Board also reversed its prior decisions that private companies would be required to disclose numerical rate reconciliations, an explanation of the nature and amounts of valuation allowances recorded and released during the reporting period and additional information on operating loss and tax credit carryforwards. The Board decided to require prospective transition for all income tax disclosures. A proposed effective date was not discussed. The FASB directed its staff to perform outreach on the operability of requiring companies to disclose cash and cash equivalents, marketable securities and loans underlying undistributed earnings that are indefinitely reinvested. After that outreach is complete, the FASB plans to issue a formal proposal. — For more information about EY's Tax Accounting services, visit us at www.ey.com/US/TaxAccounting
1 See our To the Point publication, FASB may add income tax disclosures related to foreign earnings. 2 See our To the Point publication, FASB may change income tax disclosure requirements related to unrecognized tax benefits. Document ID: 2016-0605 | |||||||
