FASB aims to improve income tax disclosures

The Financial Accounting Standards Board proposed an accounting standards update Wednesday to address requests from investors for better income tax disclosures from public companies.

During its consultations in 2021 on its future agenda, the board heard concerns from investors and analysts that the existing income tax disclosures don't offer enough information to help them understand the tax position of a company that operates in multiple jurisdictions. Investors currently 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.

While the investors said they mostly find these disclosures helpful, they suggested possible enhancements to better understand a company's exposure to potential changes in jurisdictional tax legislation and the ensuing risks and opportunities, to assess income tax information that affects cash flow forecasts and capital allocation decisions, and to identify potential opportunities to increase future cash flows.

Investors, lenders, creditors and other allocators of capital indicated that FASB's existing income tax disclosures should be improved to provide information to better assess how an entity's worldwide operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. 

Courtesy of GASB

The amendments in the proposed update would answer those investor requests for more transparency about income tax information through improvements to disclosures primarily related to the rate reconciliation and income taxes paid information, including jurisdictional information. The changes would require consistent categories and greater disaggregation of information in the rate reconciliation, and income taxes paid disaggregated by jurisdiction.

"The FASB's proposed enhancements to income tax disclosures, primarily related to the rate reconciliation and income taxes paid information, are intended to help investors better assess how an entity's worldwide operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows," said FASB Chairman Richard Jones in a statement Wednesday. "We encourage all stakeholders to review and share their views on the proposed changes and whether they believe those proposed changes would improve this important area of financial reporting."

FASB is asking stakeholders to review and comment on the proposed accounting standards update by May 30. The proposed ASU, including information on how to submit comments, is available here.