The Financial Accounting Resource Center™ is a comprehensive research service that provides the full text of standards, the latest news from the Accounting Policy & Practice Report ®,...
By Denise Lugo
Potential changes to income tax accounting disclosures would create information overload and could lead to inaccurate conclusions about companies, according to a professional association for thousands of in-house tax executives for businesses.
Tax Executives Institute Inc. told the Financial Accounting Standards Board that many of the revisions in the board’s July proposal would also expand existing financial statement disclosures for income taxes and add new ones without providing clear benefits.
“We believe there is a real risk that changes in the proposed update will create information overload and confusion for readers leading to inaccurate conclusions,” TEI said in a Dec. 12 comment letter on the proposal.
Among other comments, TEI has concerns that proposed disclosures related to foreign source earnings would be duplicative, subjective and would raise the cost of preparing financial disclosures.
Overall, TEI says the volume of change and additions would be cumbersome and in many cases not helpful or useful.
The organization pointed to areas where disclosures would be duplicative and costly for financial statement preparers without added benefit to users. One area TEI cited would require pretax income and loss—along with income tax expense and benefit—to be broken out between “foreign” and “domestic” in the financial statements.
Moreover, some of the disclosure provisions would introduce subjectivity and unintended consequences, the organization says. Specifically, the requirement that companies explain the circumstances that would cause a change in assertion about their intention to repatriate or not to repatriate earnings and the corresponding amount of those earnings. This rule won’t be useful to financial-statement readers “because it would be based on anticipated events that may never occur,” it said.
Another requirement—that companies disclose an enacted change in tax law that would likely affect the company in a future period—also introduces subjectivity and judgment into the disclosures. That type of information is non-verifiable, future-oriented and causes concern “because actual future events or conditions may be materially different than the internal projection,” TEI said.
FASB’s July 26 income tax disclosure proposals would require multinationals and other firms to disclose cash, cash equivalents and marketable securities held by foreign subsidiaries. The proposed changes intend to bring simplicity and greater transparency to income tax disclosures, particularly in relation to foreign-source earnings.
FASB issued the proposal as part of its broader effort to improve footnote disclosures to financial statements via a disclosure framework—a type of internal conceptual guide the board would use to determine disclosure requirements so that they are consistent.
The proposed revisions to income tax disclosures are part of efforts to test the disclosure framework with the potential of finalizing new disclosures for ASC 740, Income Taxes, and three other accounting standards.
FASB chose income tax disclosures for revision because of the current complexity around those rules and because investors and other financial statement users have asked for a simpler, clearer picture of companies’ operations—particularly as they relate to foreign source earnings.
What companies disclose in footnotes typically provide vital information to investors and other financial statement users because they highlight items that could significantly affect the financial health of a company and its ability to generate profit.
FASB has said its work is far from over on this topic. The board plans on holding roundtable discussions in March on its overall disclosures work and will hear feedback before redeliberations and decisions on how to proceed.
To contact the reporter on this story: Denise Lugo in New York at email@example.com
To contact the editor responsible for this story: S. Ali Sartipzadeh at firstname.lastname@example.org
Copyright © 2016 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)