FASB Progresses on Disclosures Related to Undistributed Foreign Earnings(1)

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By Denise Lugo

Feb. 11 — Companies should be required to separately disclose their pre-taxable income by domestic and foreign earnings, the Financial Accounting Standards Board tentatively decided.

Also, a breakout of foreign earnings should be required by jurisdictions that represent a significant percent of total foreign earnings, the board said Feb. 11.

“You'd first have to determine if foreign earnings are significant,” said FASB Chairman Russell Golden. “Then you'd have to determine that it's significant within the various foreign jurisdictions before you'd ever trigger any of this disclosure,” he said.

By requiring the information, FASB will provide users a better understanding about quality of earnings, composition of earnings by differing tax jurisdictions in determining the ability of an entity to indefinitely reinvest the unlimited earnings, FASB staff accountants told the board.

The discussions were part of the board's broader ongoing deliberations to develop its disclosure framework. FASB looked at four sub-issues on disclosures for income taxes related to undistributed foreign earnings.

Undistributed foreign earnings represent taxable earnings received outside the United States that are not remitted to the U.S. in the period in which they are earned.

Taxes on Foreign Earnings

The board also discussed taxes on foreign earnings focusing on enabling financial statement users to better understand and analyze the income tax expense line.

Board members agreed that companies should be required to disclose domestic tax expense recognized in the period of taxes on foreign earnings, but decided against requiring disaggregation.

In addition, FASB agreed to require disclosure of amounts during the current period that are no longer asserted to be indefinitely reinvested.

A company would, also, be required to explain the circumstances that caused it to no longer assert that the earnings are indefinitely reinvested, the board said.

Moreover, if there has been a change to the indefinite reinvestment assertion, separate disclosures would be required for foreign jurisdictions that represent a significant percent of the amount disclosed, according to the discussions.

The income tax line is aggregating a number of items, some of which are domestic, and others that are related to foreign earnings, said FASB member Marc Siegel. “And so you'd want to have that broken out foreign,” because those aren't going to be related to anything that has to do with domestic earnings,” he said.

Accumulated Foreign Earnings by Jurisdiction

The board also said it would require separate disclosures for the accumulated amount of indefinitely reinvested foreign earnings by jurisdiction.

Specifically, companies will be required to make the disclosures for any foreign jurisdiction that represents at least 10 percent of the total accumulated amount of indefinitely reinvested foreign earnings.

To contact the reporter on this story: Denise Lugo in Norwalk, Conn., at dlugo@bna.com

To contact the editor on this story: Laura Tieger Salisbury at lsalisbury@bna.com

For a copy of the board's handout go to http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176164788243