FASB issued an Accounting Standards Update (ASU) that requires greater disaggregation of income tax disclosures.
ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, requires consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction.
"The new standard responds to calls from investors for more transparent, decision-useful information about a company's income taxes," FASB Chair Richard Jones said in a news release. "It requires enhanced disclosures primarily related to existing rate reconciliation and income taxes paid information to help investors better assess how a company's operations and related tax risks and tax planning and operational opportunities affect the company's tax rate and prospects for future cash flows."
The news release noted that the new requirements came about in response to calls from "investors, lenders, creditors, and other allocators of capital … that use the financial statements to make capital allocation decisions."
The ASU, which also includes certain other amendments to improve the effectiveness of income tax disclosures, is effective for public business entities for annual periods beginning after Dec. 15, 2024. For other entities, the amendments are effective for annual periods beginning after Dec. 15, 2025.
The amendments require that all entities disclose on an annual basis the following information about income taxes paid:
- The amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes; and
- 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% of total income taxes paid (net of refunds received).
All entities also are required to disclose:
- Income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign; and
- Income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign.
— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.