On Dec. 14, 2023, the Financial Accounting Standards Board (FASB) issued a long awaited standards update which impacts disclosures for income taxes under ASC740. The intent of the update is to provide further clarity in the income tax disclosures for entities filing financial statements under U.S. GAAP. Importantly, much of the update centers around disclosures that are currently required for public entities, but not previously required to be included for private entities.
Under the update, all entities are required to provide additional disclosure under the effective tax rate schedule, including disclosure in the following areas:
a. State and local income tax, net of federal (national) income tax
effect
b. Foreign tax effects
c. Effect of changes in tax laws or rates enacted in the current period
d. Effect of cross-border tax laws
e. Tax credits
f. Changes in valuation allowances
g. Nontaxable or nondeductible items
h. Changes in unrecognized tax benefits.
Separate disclosure is required for any reconciling item listed below in which the effect of the reconciling item is equal to or greater than 5 percent of the amount computed by multiplying the income (or loss) from continuing operations before income taxes by the applicable statutory
income tax rate.
Note that public filers are required to make additional qualitative disclosures under the update.
Additionally, filers are required to make additional disclosures of income taxes paid, including:
a. The amount of income taxes paid (net of refunds received)disaggregated by federal (national), state, and foreign taxes
b. The amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income
taxes paid (net of refunds received).
The amendments in this Update require that all entities (previously only required for public filers) disclose the following information:
- Income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign
- Income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign.
Additional updates are made relating to disclosure of unrecognized tax benefits. All of the above disclosure changes are required to be adopted prospectively for annual periods beginning after Dec. 15, 2024 for public entities, and Dec. 15, 2025 for other filers. Early adoption and retroactive application are permitted.
For questions relating to this update, please reach out to Gillon Tax Advisors here.
For full text of the update, please see the link below: