The plan to increase tax disclosures in financial reports has been on the agenda of the Financial Accounting Standards Board (FASB) since 2014. Repeated outreach efforts were made to promote transparency for shareholders while not creating a burden for companies. Once again, FASB has proposed changes to accounting standards that will provide additional information to investors regarding federal, state, and foreign taxes.
Currently, public companies are required to disclose annually their pre-tax net income for U.S. and foreign operations and their tax expense or benefit. They must also disclose their effective tax rate or the ratio between their tax expense and their pre-tax income. The latest proposal would require that companies disclose income taxes paid to federal, state, and foreign entities for the year to date in their quarterly and annual financial statements. In addition, any state or country that receives more than 5% of the company’s total tax payments must be separately identified on an annual basis.
In addition, a more detailed disclosure of the effective tax rate calculation would be required under the new proposal. Companies would be required to include a table showing how categories such as state and local taxes, foreign taxes tax credits, and new tax laws contribute to the difference between the statutory tax rate and the actual tax rate. Currently, companies only disclose the total difference in rates, but not on a uniform basis. The proposal attempts to standardize the reporting to shareholders in a more useful format.
As the current proposal is not as broad in scope as previous proposals, FASB feels that these changes would not impose a great burden on companies to comply, while it improves disclosures to investors. The proposal is planned for release by the end of the first quarter in 2023, providing for a 75-day public comment period.
Contact the experts at Ryan now to assist you in crafting your company’s financial statement disclosures.
TECHNICAL INFORMATION CONTACTS:
Mark Nachbar
Ryan
Principal
630.515.0477
mark.nachbar@ryan.com
Brian Stromen
Principal
Ryan
763.445.4200
brian.stromen@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.