Disclosure Framework — FASB Makes Tentative Decisions About Income Tax Disclosure Requirements
March 29, 2016 — At its meeting last week, the FASB continued its discussions of income tax disclosure requirements as part of its project to review financial statement disclosures. The Board made tentative decisions related to indefinitely reinvested earnings, private-company requirements, and various other matters regarding income tax disclosures, as summarized below.
Indefinitely Reinvested Earnings
The Board tentatively decided to require all entities to explain, and specify the amount of, any change to their indefinite reinvestment assertion during the year. (Under an earlier tentative decision, the Board would have required entities to disclose only that they had made a change to no longer assert that foreign earnings are indefinitely reinvested.)
Private-Company Income Tax Disclosures
The Board redeliberated and reversed its earlier tentative decisions to require private entities to disclose the following:
- A rate reconciliation (as required for public companies).
- The amounts and expiration dates of (1) gross operating loss and tax credit carryforwards recorded on a tax return (on an as-filed basis) and (2) the tax effect of such operating loss and tax credit carryforwards (i.e., the deferred tax assets on an as-filed basis).
- The total amount of unrecognized tax benefits determined on an as-filed basis that offset deferred tax assets related to operating loss and tax credit carryforwards.
- An explanation of the nature and amount of any valuation allowance recorded or released during the reporting period.
Other Income Tax Disclosures and Transition Guidance
The Board redeliberated various income tax disclosure requirements and retained its decision to require all entities to disclose:
- An enacted tax law change if it is probable that such change would have an effect on the reporting entity in a future period.
- A disaggregation between domestic and foreign amounts for (1) income (or loss) before income taxes, (2) income tax expense (or benefit), and (3) income taxes paid. An entity would be required to further disaggregate foreign income taxes paid for any country that is individually significant to the total amount of income taxes paid.
In addition, the Board reversed its earlier decision to require the following income tax disclosures:
- The balance sheet lines on which deferred taxes are presented (i.e., a mapping of the total deferred taxes to the balance sheet lines on which they are reported).
- The domestic tax expense recognized in the period related to foreign earnings.
Further, the Board tentatively decided to require prospective transition for all income tax disclosure guidance.
The Board did not redeliberate previously reached tentative decisions related to unrecognized tax benefits and various other income tax disclosures; accordingly, such decisions remain in effect. For summaries of the Board’s earlier tentative decisions related to income tax disclosures under the disclosure framework project, see the Deloitte journal entries published on the following dates: February 12, 2015 (undistributed foreign earnings); August 28, 2015 (unrecognized tax benefits); and October 26, 2015 (various income tax disclosure requirements).
The Board instructed its staff to conduct further outreach with stakeholders related to the operability of disclosing the aggregate amount of liquid assets (e.g., cash, cash equivalents, marketable securities, and loans) related to foreign earnings that are indefinitely reinvested.