September 20, 2022
The Financial Accounting Standards Advisory Council (FASAC) held its quarterly meeting on Tuesday, September 20, 2022. The FASB chair provided highlights on FASB activities that were not otherwise on the agenda for the Council meeting, and SEC, AICPA, and PCAOB staff members commented on current issues and activities. Council members discussed the following topics:
Targeted Improvements to Income Tax Disclosures: Council members discussed potential improvements to the disclosure of income taxes paid and the rate reconciliation. Overall, Council members were supportive of the development of enhancements to those disclosures. Investors and other allocators of capital (collectively “investors”) emphasized the importance of understanding the rate reconciliation and disaggregation of cash taxes paid to gain insight about a company’s tax risks and opportunities, the tax strategy, the sustainability of tax rates, and trend information about tax rates over time. Preparers indicated that disclosing additional information about cash taxes paid would be relatively straightforward from an operational perspective while disclosing additional information in the rate reconciliation, while workable, would present more challenges.
Income Taxes Paid: Many Council members, including preparers, practitioners, and investors, indicated a preference for a principle-based requirement for disaggregation, such as disaggregation by major jurisdiction, which is a term used in other existing requirements in Topic 740, Income Taxes. Other Council members, including some investors, favored a quantitative threshold that also would capture information about cash taxes paid at the state and local levels or from nonmajor jurisdictions.
Preparers noted that information about cash taxes paid by jurisdiction generally is available without significant cost. However, Council members (including preparers and investors) questioned its usefulness without providing other contextual information, such as pretax income by jurisdiction and additional insights into a company’s tax strategies, which could be challenging.
Rate Reconciliation: Council members discussed potential improvements to the rate reconciliation disclosure that would provide more granular information using (a) a quantitative threshold approach and (b) a specific category approach—both of which are being considered by the Board. Council members generally supported those potential improvements to the rate reconciliation disclosure.
Investors noted that a disaggregated rate reconciliation would provide decision-useful information including understanding a company’s tax risks and opportunities, the sustainability of a company’s effective tax rate, and differentiating ongoing versus one-time events that could affect taxes. Some investors noted that given the diversity in how companies currently prepare their rate reconciliation and the wide variety of existing disclosures among companies, the potential improvements to the rate reconciliation could improve the comparability between companies and provide additional decision-useful information to investors.
Preparers noted that compiling information for a more disaggregated rate reconciliation would be more complex than compiling information about cash taxes paid, due to the amount of information included in the rate reconciliation as well as some of the judgments involved. Preparers noted that diversity exists in how companies prepare their rate reconciliations. For example, companies may prepare the rate reconciliation top-down or bottom-up.
Accounting for and Disclosure of Crypto Assets: The FASB staff provided an update to Council members on the project, including the Board’s recent decisions on scope. Council members provided input about scope as well as current presentation and disclosure practices under existing GAAP for crypto assets. Council members generally supported the project scope, noting that it is a good starting point. Council members discussed specific examples of digital assets and whether they would be included in the project’s scope.
FASAC Meeting Recaps are provided for those interested in following the activities of the FASAC. More details on the FASAC’s input on the FASB’s projects can be found at FASB.org. Official positions of the FASB are reached only after extensive due process & deliberations.