TENTATIVE BOARD DECISIONS
Tentative Board decisions are provided for those interested in following the Board’s deliberations. All of the reported decisions are tentative and may be changed at future Board meetings.
Wednesday, February 1, 2023 FASB Board Meeting
Accounting for and disclosure of crypto assets. The Board discussed clarifications to the scope, transition, costs and benefits of the decisions reached, and the comment period.
The Board decided to clarify that the scope of this project would exclude crypto assets created or issued by the reporting entity or their related parties. The Board also observed that the scope criteria would exclude assets commonly referred to as “wrapped tokens” and that the Board’s basis for conclusions should clearly emphasize that point. The Board decided to not modify the scope criteria to specify that the distributed ledger or blockchain must be public.
The Board decided that early adoption should be permitted and that a cumulative-effect adjustment to retained earnings (or other appropriate components of equity or net assets in the statement of financial position) would be recognized as of the beginning of the first annual period in which the guidance is adopted. The Board decided that all entities, including nonpublic entities, should be subject to the same effective date and transition requirements; the Board will further consider this in establishing the effective date in the issuance of a final Accounting Standards Update.
The Board concluded that it has received sufficient information and analysis to make an informed decision on the expected costs of the proposed amendments and that the expected benefits of those amendments would justify the expected costs.
The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot. Additionally, the Board decided to expose the proposed Update for public comment for 75 days.
Topic 815—Hedge Accounting Improvements (formerly known as Codification Improvements—Hedge Accounting). The Board discussed the issues in the Hedge Accounting—Phase 2 research project identified through agenda requests, feedback on the June 2021 Invitation to Comment (ITC), Agenda Consultation, past comment letters, and stakeholder outreach.
The Board decided to add the following issues to the scope of the project:
Other technical inquiry discussion. The purpose of this discussion was to share with the Board a technical inquiry and staff response related to the applicability of deferred tax accounting to the minimum tax described in the Global Anti-Base Erosion (GloBE) rules. The GloBE rules and associated commentary were released as part of the Pillar Two initiative by the Organisation for Economic Co-operation and Development (OECD).
The OECD’s objective with Pillar Two is for large international operating businesses to pay a minimum level of tax through a series of rules that include a global minimum corporate tax of 15% of adjusted net income. The GloBE rules provide a template that jurisdictions may use when developing and enacting their domestic tax laws and are intended to be enacted via domestic tax law in the respective countries.
Inquiry
The FASB staff received a technical inquiry from several accounting firms asking whether an entity should record deferred taxes for the GloBE minimum tax by recognizing GloBE-specific deferred taxes or remeasuring existing deferred taxes at the GloBE minimum tax rate.
Response
The FASB staff believe that the GloBE minimum tax as illustrated in the inquiry is an alternative minimum tax (AMT) as discussed in Topic 740, Income Taxes. As an AMT, deferred tax assets and liabilities would not be recognized or adjusted for the estimated future effects of the minimum tax.
The FASB staff believe the authoritative literature in paragraphs 740-10-30-10 through 30-12 and 740-10-55-31 and 740-10-55-32 supports this conclusion. The GloBE minimum tax should be viewed as a separate but parallel tax system that is imposed to ensure that certain taxpayers pay at least a minimum amount of income tax. Additionally, the FASB staff observe that the potential obligation for GloBE taxes in future years is dependent on the generation of future adjusted net income.
The FASB staff’s view is based on the facts and circumstances outlined in the inquiry that relate to the OECD’s GloBE minimum tax. Any enacted tax law would need to be evaluated to determine whether those facts and circumstances are consistent with the inquiry.
Wednesday, February 1, 2023 FASB Board Meeting
Accounting for and disclosure of crypto assets. The Board discussed clarifications to the scope, transition, costs and benefits of the decisions reached, and the comment period.
The Board decided to clarify that the scope of this project would exclude crypto assets created or issued by the reporting entity or their related parties. The Board also observed that the scope criteria would exclude assets commonly referred to as “wrapped tokens” and that the Board’s basis for conclusions should clearly emphasize that point. The Board decided to not modify the scope criteria to specify that the distributed ledger or blockchain must be public.
The Board decided that early adoption should be permitted and that a cumulative-effect adjustment to retained earnings (or other appropriate components of equity or net assets in the statement of financial position) would be recognized as of the beginning of the first annual period in which the guidance is adopted. The Board decided that all entities, including nonpublic entities, should be subject to the same effective date and transition requirements; the Board will further consider this in establishing the effective date in the issuance of a final Accounting Standards Update.
The Board concluded that it has received sufficient information and analysis to make an informed decision on the expected costs of the proposed amendments and that the expected benefits of those amendments would justify the expected costs.
The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot. Additionally, the Board decided to expose the proposed Update for public comment for 75 days.
Topic 815—Hedge Accounting Improvements (formerly known as Codification Improvements—Hedge Accounting). The Board discussed the issues in the Hedge Accounting—Phase 2 research project identified through agenda requests, feedback on the June 2021 Invitation to Comment (ITC), Agenda Consultation, past comment letters, and stakeholder outreach.
The Board decided to add the following issues to the scope of the project:
- Shared risk assessment in cash flow hedges of loan portfolios
- Written options as hedging instruments.
- Net investment hedges—float-for-float cross-currency swaps
- Perfectly effective assessment methods and LIBOR cessation
- Basis spreads across various new interest rates
- Foreign-currency-denominated debt issuance
- Cross-border business acquisitions as hedged forecasted transactions
- Hedge of translation risk
- Forecasted intra-entity transactions
- Dividends on equity classified shares as hedged items
- Expansion of allowable excluded components
- Shortcut method for forward-starting swaps
- Forecasted issuance of debt—hedge of proceeds versus a series of coupons
- Fair value hedges of interest rate risk of portfolios of liabilities using the portfolio layer method
- Interest rate risk of held-to-maturity debt securities
- Inflation risk of debt securities as hedged risk
- Benchmark component fair value hedges of nonfinancial assets and liabilities
- Equity method investments as hedged items
- Nonderivatives as hedging instruments
- Disclosures.
Other technical inquiry discussion. The purpose of this discussion was to share with the Board a technical inquiry and staff response related to the applicability of deferred tax accounting to the minimum tax described in the Global Anti-Base Erosion (GloBE) rules. The GloBE rules and associated commentary were released as part of the Pillar Two initiative by the Organisation for Economic Co-operation and Development (OECD).
The OECD’s objective with Pillar Two is for large international operating businesses to pay a minimum level of tax through a series of rules that include a global minimum corporate tax of 15% of adjusted net income. The GloBE rules provide a template that jurisdictions may use when developing and enacting their domestic tax laws and are intended to be enacted via domestic tax law in the respective countries.
Inquiry
The FASB staff received a technical inquiry from several accounting firms asking whether an entity should record deferred taxes for the GloBE minimum tax by recognizing GloBE-specific deferred taxes or remeasuring existing deferred taxes at the GloBE minimum tax rate.
Response
The FASB staff believe that the GloBE minimum tax as illustrated in the inquiry is an alternative minimum tax (AMT) as discussed in Topic 740, Income Taxes. As an AMT, deferred tax assets and liabilities would not be recognized or adjusted for the estimated future effects of the minimum tax.
The FASB staff believe the authoritative literature in paragraphs 740-10-30-10 through 30-12 and 740-10-55-31 and 740-10-55-32 supports this conclusion. The GloBE minimum tax should be viewed as a separate but parallel tax system that is imposed to ensure that certain taxpayers pay at least a minimum amount of income tax. Additionally, the FASB staff observe that the potential obligation for GloBE taxes in future years is dependent on the generation of future adjusted net income.
The FASB staff’s view is based on the facts and circumstances outlined in the inquiry that relate to the OECD’s GloBE minimum tax. Any enacted tax law would need to be evaluated to determine whether those facts and circumstances are consistent with the inquiry.