B.1 Overview
In December 2023, the FASB issued ASU 2023-09, which establishes new income tax
disclosure requirements in addition to modifying and eliminating certain existing
requirements. Under the new guidance, entities must consistently categorize and provide
greater disaggregation of information in the rate reconciliation. They must also further
disaggregate income taxes paid.
The ASU’s disclosure requirements apply to all entities subject to ASC 740. As the FASB
notes in ASC 740-10-50-11A (added by the ASU), the “objective of these disclosure
requirements is for an entity, particularly an entity operating in multiple
jurisdictions, to disclose sufficient information to enable users of financial
statements to understand the nature and magnitude of factors contributing to the
difference between the effective tax rate and the statutory tax rate.”
PBEs must apply the ASU’s guidance to annual periods beginning after December 15, 2024
(2025 for calendar-year-end PBEs). Entities other than PBEs have an additional year to
adopt the ASU.
B.1.1 Materiality
In developing ASU 2023-09, the FASB decided against clarifying in ASC 740 whether an
entity should consider materiality when evaluating the required disclosures.
Instead, the Board notes in paragraph BC22 of the ASU that it “observed that the
guidance in paragraph 105-10-05-6, which states that the provisions of the
Codification need not be applied to immaterial items, is applicable to the
amendments in [the ASU], as it is to all Codification guidance. Therefore . . . an
entity does not need to separately disclose the required specific categories or
reconciling items if they are immaterial, even if the quantitative threshold is
met.” Since the ASU does not define materiality, entities must apply judgment to
determine whether an item is immaterial and should consider both quantitative and
qualitative factors.
B.1.2 Application of Judgment
In the Basis for Conclusions of ASU 2023-09, the FASB acknowledges that entities will
need to use judgment when applying certain of the ASU’s disclosure requirements. The
Board states in paragraph BC29 that when applying such judgment, an entity “should
assess whether the disclosure objective in paragraph 740-10-50-11A is met [and]
consider whether an accompanying explanation is needed in accordance with paragraph
740-10-50-12C.” An entity may be required to use judgment in situations in which,
for example, (1) it evaluates certain reconciling items that may not clearly fall
into a single category or might have characteristics of multiple categories or (2)
it operates at or near the break-even point.