FASB Seeks More Disclosure on Foreign Versus Domestic Taxes

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By Steve Burkholder

March 23 — Companies would have to disaggregate income tax expense, pre-tax income, and cash paid for income taxes between domestic and foreign sources and levies in footnote disclosures that the Financial Accounting Standards Board is seriously considering.

FASB also proposes to go a bit further in the domestic and foreign splitting for taxes paid. It voted to call for footnote disclosures of those cash amounts ascribed to a specific country in which a U.S. public company operates and where that country is significant to total taxes paid, the board tentatively decided March 23.

Those decisions were among many made at a lengthy FASB meeting on how to improve disclosures about income taxes for the benefit of investors without imposing undue reporting burdens on companies.

The board's chairman, Russell Golden, said the panel made “really good progress” in the effort, part of FASB's multi-faceted disclosure framework project.

The board plans to meet in coming months to try to complete a draft accounting standards update on companies' income tax-related disclosure. Golden said recently that he hopes to have a clear picture by the year's end of how FASB plans to complete the overall disclosure framework effort .

More Study of Foreign Earnings Issue

Left pending after FASB's March 23 meeting is how the board would have public companies disclose information about the temporary difference for permanent investments stemming from undistributed foreign earnings. Investors especially are focused on the issue, because taxes on such differences are not recognized or measured today.

Of the Fortune 500 companies that disclosed information about undistributed foreign earnings, “only 11 percent provided an amount of the estimated tax on those undistributed foreign earnings,” according to a FASB staff handout prepared for the meeting.

The board's staff is studying the issue further and plans to conduct more outreach, particularly among U.S. companies that have extensive overseas operations.

FASB is interested in learning more about how operational its proposed prescription on the issue might be .

The board didn't reach a tentative conclusion on whether an entity should “disaggregate the temporary difference for the cumulative amount of investments associated with undistributed foreign earnings that are essentially permanent in duration if any country represents at least 10 percent of the disclosed amount.” The board favored such a disclosure recipe in an earlier tentative decision.

To contact the reporter on this story: Steve Burkholder in Norwalk, Conn., at sburkholder@bna.com

To contact the editor responsible for this story: Xing Gao at xgao@bna.com

For More Information

A detailed handout on the questions weighed by FASB March 23 is available at: http://src.bna.com/dx3.

FASB plans to post a summary of board decisions in the disclosure project soon at: http://src.bna.com/dx2

For a discussion of Accounting for Income Taxes, see 5000-5th, Accounting for Income Taxes: FASB ASC 740.

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