FASB Issues Standard That Enhances Income Tax Disclosures

The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) that addresses requests for improved income tax disclosures from investors, lenders, creditors, and other allocators of capital (collectively, “investors”) that use the financial statements to make capital allocation decisions.

“The new standard responds to calls from investors for more transparent, decision-useful information about a company’s income taxes,” stated FASB Chair Richard R. Jones. “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 ASU improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures.

For public business entities, the standard is effective for annual periods beginning after December 15, 2024. For other entities, the amendments are effective for annual periods beginning after December 15, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance.

The ASU, including more information about transitioning to the new standard, is available at www.fasb.org.

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