FASB to Draft Final ASU on Improvements to Income Tax Disclosures

ARTICLE | September 29, 2023

In March 2023, the Financial Accounting Standard Board (FASB or Board) issued a proposed accounting standards update (ASU), Income Taxes (Topic 740) Improvements to Income Tax Disclosures. The comment period closed on May 30, 2023. The FASB received many comment letters from preparers, investors, and auditors, including one from RSM. On August 30, 2023, the Board deliberated on the feedback received and authorized its staff to draft the final ASU for the Board vote by ballot.

The Board’s conclusions and recommendations generally follow the guidance provided in the proposed ASU as outlined in our prior article, ASC 740: FASB proposes new income tax disclosures. The final ASU is expected to include additional clarity on certain questions raised through feedback from stakeholders, including the following key areas:

• The FASB clarified that all items in the rate reconciliation must be presented on a gross basis, except where specific guidance allows net presentation. The final ASU is expected to allow entities to disclose the effects of certain cross-border tax law items net of the related foreign tax credits. An example of this is the effects of global intangible low tax income (GILTI).
• The FASB clarified that entities will be permitted to present changes in unrecognized tax benefits on an aggregate basis from all jurisdictions as one line in the rate reconciliation rather than requiring the unrecognized tax benefits category to be reported by individual jurisdiction.
• The FASB clarified that, with respect to the requirement to disclose the state and local jurisdictions that contribute to the “majority of the effect” of the state and local income tax category, “majority of the effect” means greater than 50% of the effect of the category.

In addition to the above clarifications, the FASB eliminated the proposed interim disclosure requirement for a separate qualitative analysis of reconciling items that result in significant changes in the estimated annual effective tax rate from the effective tax rate of the prior annual reporting period. The FASB also eliminated the requirement to disclose income taxes paid disaggregated by federal, state, and foreign, on an interim basis, making this only an annual requirement. The final ASU is expected to be effective for public business entities with fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025, and will be applied on a prospective basis. For entities other than public business entities, the final ASU is expected to be effective for fiscal years beginning after December 15, 2025, and interim periods within fiscal years beginning after December 15, 2026. Entities may elect to apply the amendments on a retrospective basis and early adoption will be permitted.

This article was written by RSM US LLP and originally appeared on 2023-09-29.
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