The FASB’s recent Accounting Standards Update (ASU) 2023-09 enhances income tax footnote disclosures for better transparency and utility in financial statements. Work with your tax advisor now to understand these new requirements, begin assessing what additional information is to be disclosed, and determine how to gather that information to meet these requirements in advance of effective dates. 

By Lindsay Haskell and Dan DeLau

The Financial Accounting Standards Board recently updated it requirements for income tax footnote disclosures (Accounting Statement Update 2023-09) to provide more transparency and usefulness to investors, lenders, creditors, and other users of financial statements. Specifically, the updates are expected to help these users better understand tax law exposures and provide more detailed information for cash flow forecasts. These updated disclosures apply to any organization that accounts for income taxes pursuant to ASC 740, Income Taxes.  

The amendments expand effective rate reconciliation disclosures, require detailed disclosures of taxes paid, along with other additional disclosures relating to an entity’s operations, the highlights of which are provided below.  

Rate Reconciliation

To provide more consistent disclosure of rate reconciliation items, the following specific categories are required to be disclosed for public business entities using both percentages and amounts: 

  • State and local income taxes, net of federal benefit 
  • Foreign taxes 
  • Effect of changes in tax laws or rates 
  • Effect of cross-border tax laws 
  • Tax credits 
  • Changes in valuation allowances 
  • Non-taxable or nondeductible items 
  • Changes in unrecognized tax benefits 

Additional disclosures are required for the effect of cross-border tax laws, foreign taxes (including details by country), a qualitative description of state and local income taxes jurisdictions that make up the majority of the amount, and unrecognized tax benefits. If not otherwise evident, additional qualitative disclosures are required for specific categories of reconciling items and individual jurisdictions that result in a significant difference between the statutory tax rate and the effective tax rate. 

Income Taxes Paid 

For all entities, the amount of income taxes (net of refunds) paid must be disclosed, categorized by federal, state, and foreign taxes. Further details as to payments made to individual jurisdictions must be presented for all amounts greater than 5% of the total income taxes paid.  

Other Disclosures 

Of note, reporting is required of all entities for income or loss from continuing operations before income tax, categorized by domestic and foreign along with income tax expense from continuing operations categorized by federal, state, and foreign income tax expense. Other disclosures and requirements were included in the update. 

Effective Date 

For public companies, these updates are effective for annual periods beginning after December 15, 2024. For entities other than public business entities, the amendments are effective for annual periods beginning after December 15, 2025.  

Next Steps 

We’ve covered the key components of ASU 2023-09 here but additional provisions apply. We suggest that companies begin working with their tax advisors now to understand these new requirements, assess what additional information is to be disclosed, and determine how to gather that information in advance of the effective dates. Reach out to Lindsay Haskell at TaxOps to continue this discussion.

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