Disclosures by Business Entities about Government ...
Transcript of Disclosures by Business Entities about Government ...
Board Meeting Handout
________________________
The staff prepares Board meeting handouts to facilitate the audience's understanding of the issues to be
addressed at the Board meeting. This material is presented for discussion purposes only; it is not intended
to reflect the views of the FASB or its staff. Official positions of the FASB are determined only after
extensive due process and deliberations.
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Disclosures by Business Entities about Government Assistance
June 8, 2016
PURPOSE OF THIS MEETING
1. The objective of this meeting is to begin redeliberations to discuss scope,
disclosures, and restrictions.
TOPIC 1: SCOPE—DISCLOSURE PROJECT
2. Diversity in practice exists in the recognition, measurement, and disclosure of
government assistance arrangements because no explicit generally accepted
accounting principles (GAAP) exist for government assistance received by business
entities. Preagenda research revealed a lack of decision-useful information in
financial reporting for a wide variety of government assistance. The Board added
this project to its agenda on January 29, 2014. After considering the vast array of
government assistance arrangements, diversity in practice, and resources that would
be needed to complete a comprehensive project that addresses the recognition and
measurement of government assistance in a reasonable period of time, the Board
decided to focus the project on developing disclosures in the notes to financial
statements to increase transparency about government assistance arrangements,
including (a) the types of arrangements, (b) the accounting for government
assistance, and (c) their effect on an entity’s financial statements.
3. During initial deliberations, the staff and the Board have received questions from
some stakeholders about the Board’s basis for deciding why this project is limited
to disclosures. Specifically, at the March 17, 2015 Financial Accounting Standards
Advisory Council (FASAC) meeting, some FASAC members indicated that they
believe that recognition and measurement should be the focus of the project. The
staff discussed the questions raised from stakeholders with the Board at the SGMs
in April 2015. At those meetings, the consensus among Board members was to
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proceed with the scope that the Board had originally set when it added this project
to the agenda (disclosure only).
4. Feedback on the proposed FASB Accounting Standards Update, Government
Assistance (Topic 832): Disclosures by Business Entities about Government
Assistance (proposed Update), indicated that some stakeholders (primarily
practitioners, public company preparers, and the FASAC) urged the Board to
reconsider the project as a recognition, measurement, presentation, and disclosure
project as opposed to a disclosure-only project. Some respondents believe that IAS
20, Accounting for Government Grants and Disclosure of Government Assistance,
provides a clear and reasonable framework, and they recommended that the Board
look to this standard in the next steps of the proposed Update.
Question 1 for the Board
Does the Board want to reaffirm the scope of the project (disclosure only)?
TOPIC 2: SCOPE—LEGALLY ENFORCEABLE AGREEMENT
5. Question 1 of the proposed Update asked respondents to comment on whether they
agree that the scope of the amendments (a) should be limited to legally enforceable
agreements in which an entity or entities receive value from a government and (b)
should not apply to transactions in which the government is (i) legally required to
provide a nondiscretionary level of assistance to an entity simply because the entity
meets the applicable eligibility requirements that are broadly available without
specific agreement between the entity and the government or (ii) solely a customer.
Many respondents agree that the scope should be limited to legally enforceable
agreements and would represent a manageable parameter for entities to determine
whether an agreement is within the scope. Some of these respondents request that
the Board clarify certain terminology (for example, value, discretionary, and
broadly available). Other respondents disagree with the scope and believe that the
scope is too broad and that the Board should limit the scope to specific types of
assistance. For example, the scope could include various types of assistance,
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including loan guarantees, income taxes, grants, tax abatements, and so on. Some
stakeholders raised questions about whether tax settlements or transfer pricing
agreements would be within the scope of the project.
6. A few respondents suggest that the Board expand the scope to include agreements
that are nondiscretionary. These respondents believe that a similar lack of
transparency exists for those types of assistance.
7. Overall, most stakeholders were supportive of the exclusion of transactions in
which the government is (a) legally required to provide a nondiscretionary level of
assistance to an entity simply because the entity meets the applicable eligibility
requirements that are broadly available without specific agreement between the
entity and the government or (b) solely a customer.
8. Some stakeholders highlight that the term value is broad and question what types of
value would be considered assistance (for example, monetary/nonmonetary and
direct/indirect). In addition, some stakeholders interpret the term value to include
any type of transaction with the government (for example, zoning variances,
transfer pricing agreements, legal settlements, and other normal functions of the
government) regardless of considerations about whether the entity is receiving some
type of assistance or benefit from those transactions.
Question 2 for the Board
Does the Board agree with any or all of the following affirmation,
clarifications, and refinements to the final Update?
a. Reaffirm that the scope should be limited to legally enforceable
agreements
b. Indicate that an entity will need to consider individual facts and
circumstances to determine whether an agreement is within the scope
c. Replace the terms nondiscretionary and discretion with other words or
phrases that describe the Board’s intention
d. Replace the term value with the term assistance or benefit
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e. Indicate that a legal settlement could provide a quantitative amount;
however, an entity must look to the underlying agreement or statute to
determine if that amount is related to government assistance
f. Provide examples that describe the various mechanisms and types of
benefits that could be considered government assistance
g. Add the term generally to indicate that broadly available is not a bright
line but is, instead, a characteristic that could help an entity determine
whether assistance is within the scope of the project.
What additional changes, if any, to the scope does the Board suggest?
TOPIC 3: SCOPE—TOPIC 740, INCOME TAXES
9. Question 3 of the proposed Update asked respondents whether they agree that the
scope of the proposed amendments should not exclude government assistance
arrangements that are within the scope of Topic 740. Many respondents suggest that
the scope of the proposed Update should exclude government assistance agreements
that are within the scope of Topic 740. These stakeholders believe that the existing
disclosure requirements in Topic 740 and the Securities and Exchange Commission
(SEC) Staff Accounting Bulletin (SAB) Topic 11, Miscellaneous Disclosure, may
already provide adequate disclosures about certain government assistance
agreements. For example, paragraph 740-10-50-9(d) requires an entity to separately
disclose government grants (to the extent recognized as a reduction of income tax
expense), paragraph 740-10-50-11 requires an entity to disclose income tax expense
compared to statutory expectations, and SAB Topic 11.C, Tax Holidays, requires
disclosures on tax holidays such as the requirement to disclose the aggregate dollar
value and the per share effects of the tax holiday as well as the terms of the
arrangement, including the date on which the special tax status will terminate. Some
stakeholders believe that the proposed disclosures could increase cost and
complexity while not increasing the usefulness of the information provided to users.
10. Some stakeholders suggest that to the extent that it is an objective to increase
transparency about government assistance agreements, additional disclosure should
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be examined separately for income taxes under a more holistic approach or in the
Board’s broader review of the Topic 740 disclosures in its disclosure framework
project.
11. Many respondents point to IAS 20, which excludes government assistance that is
provided for an entity in the form of benefits that are available in determining
taxable profit or tax loss or that are determined or limited on the basis of income tax
liability. These respondents highlight that excluding transactions that are within the
scope of Topic 740 from the scope of the guidance would more closely align the
disclosures with those in IFRS.
12. For those stakeholders that agree that government assistance arrangements within
the scope of Topic 740 should not be excluded from the scope of the proposed
disclosures, emphasis was placed around consistency. These stakeholders believe
that it would be (a) inconsistent to exclude income-tax-related assistance while
including other tax-related assistance (for example, property or sales tax relief) and
(b) inconsistent with the objective of the proposed Update, which is to increase
transparency of government assistance agreements. Many users agree that legally
enforceable agreements within the scope of Topic 740 should not be excluded from the
scope of the proposed disclosures.
Alternatives
13. The staff identified the following alternatives:
(a) Alternative 1: Do not exclude transactions within the scope of Topic 740
(b) Alternative 2: Exclude transactions within the scope of Topic 740
(c) Alternative 3: Exclude transactions within the scope of Topic 740 and add
additional disclosures to Topic 740.
Question 3 for the Board
Does the Board want to reaffirm its decision that the final Update should
not exclude government assistance agreements that are within the scope
of Topic 740?
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TOPIC 4: SCOPE—TOPIC 958, NOT-FOR-PROFIT ENTITIES (NFPs)
14. This topic discusses whether the Board would like to reaffirm its decision to
exclude NFPs from the scope of this project. The issue on the perceived need for
accounting and reporting guidance of government assistance was raised primarily
due to the lack of explicit GAAP guidance for business entities. However,
government assistance can be received by all types of entities, including NFPs, and
research indicates that NFPs appear to be receiving a material amount of
government assistance. NFPs currently follow Topic 958 for government
assistance programs received by an entity that meet the definition of a contribution.
Therefore, it is debatable whether NFPs have a pervasive need for additional
disclosures about government assistance programs.
15. Topic 958 establishes standards of financial accounting for all entities (NFPs and
other business entities) that receive contributions and applies to contributions of
cash and other assets, including promises to give. Under the model, contributions
are generally recognized in the period received or, if conditional, when the
conditions on which they depend are substantially met. However, transfers of
assets from governmental units to business entities are specifically excluded from
the scope of Topic 958.
16. Paragraph 958-605-15-6 states:
The guidance in the Contributions Received Subsections does not
apply to the following transactions and activities:
a. Transfers of assets that are in substance purchases of goods
or services—exchange transactions in which each party
receives and sacrifices commensurate value. However, if an
entity voluntarily transfers assets to another or performs
services for another in exchange for assets of substantially
lower value and no unstated rights or privileges are
involved, the contribution received that is inherent in that
transaction is within the scope of the Contributions
Received Subsections.
b. Transfers of assets in which the reporting entity acts as
an agent, trustee, or intermediary, rather than as a donor
or donee (see the Transfers of Assets to a Not-for-Profit
Entity or Charitable Trust that Raises or Holds
Contributions for Others Subsections of this Subtopic).
c. Tax exemptions, tax incentives, or tax abatements.
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d. Transfers of assets from governmental units to business
entities.
17. Paragraph 55 of Statement of Financial Accounting Standards No. 116, Accounting
for Contributions Received and Contributions Made, indicates that the Board
discussed transactions that might be considered both voluntary and nonreciprocal,
such as tax incentives, tax abatements, and transfers of land, buildings, or other
assets by governments to entice business to their communities. The Board
concluded that those transactions present specific complexities that may need
special study and therefore excluded them from the scope of Statement No. 116.
18. The Board decided to exclude NFPs from the scope of the proposed Update. The
Board reached that decision because it recognized that NFPs have guidance to
follow on the accounting for government assistance that meets the definition of a
contribution in Topic 958 and concluded that users of NFP financial statements do
not have a significant need for additional information. The Board recognized that
Topic 958 provides limited disclosure requirements and that there is diversity in
practice in the accounting for government assistance among NFPs when
distinguishing contributions from exchange transactions. The Board decided that it
may consider whether any of the proposed disclosure requirements should be
applied to NFPs after considering feedback on the amendments in the proposed
Update.
19. Question 4 of the proposed Update asked respondents whether they agree that the
scope of the proposed amendments should exclude NFPs. The majority of
respondents agree. Reasons include:
(a) Topic 958 provides a sufficient framework for NFPs to use in accounting for
government assistance.
(b) An NFP’s specific considerations on government assistance are being
examined within the scope of the FASB’s project, Revenue Recognition of
Grants and Contracts by NFPs.
(c) The needs of users of the financial statements of NFPs are generally different
from that of other entities.
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A few respondents believe that NFPs should be included within the scope because
there is not enough transparency in the NFP standards pertaining to government
assistance agreements, and they challenge the adequacy of Topic 958, suggesting
that, to the extent that there are limitations in Topic 958, these limitations should be
addressed in the proposed Update.
Alternatives
20. The staff identified the following alternatives:
(a) Alternative 1: Include NFPs within the scope of this project
(b) Alternative 2: Do Not Include NFPs within the scope of this project.
Question 4 for the Board
Does the Board want to reaffirm its decision to exclude NFPs from the
scope of this project?
a. If so, does the Board want to evaluate the need for additional
disclosures for NFPs in connection with its current project on revenue
recognition of grants and contracts by NFPs?
TOPIC 5: DISCLOSURES
21. Overall, respondents did not indicate significant concerns about the majority of the
disclosures. Concerns were primarily about (a) potentially violating confidentiality
clauses (further discussed within Topic 6: Restrictions) and (b) the disagreement
with the proposed amendment that an entity should be required to disclose the
amount of government assistance received but not recognized directly in any
financial statement line item. The primary concerns about the requirement to
disclose the amount of government assistance received but not recognized were the
costs and complexities associated with compliance. These costs could arise as a
result of the use of a third party specialist and the need to develop and implement
new systems, procedures, and processes to capture the information because most
entities currently do not value assistance that is not recognized in the financial
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statements. Some respondents question what is meant by impracticable and how
some types of assistance should be measured (for example, low interest loans and
loan guarantees).
22. Auditors raised concerns about the auditability and difficulty with identifying
comparable transactions entered into between willing participants in an open
market. The determination of the benefit may be complex and require significant
judgment, and auditing the balance could be similarly challenging.
23. A few respondents agree with the proposed requirement to disclose, unless
impracticable, the amount of government assistance received but not recognized
directly in any financial statement line item. Support was received primarily from
users and Certified Public Accountant (CPA) societies. These respondents believe
that the disclosure would help to accomplish the overall objectives of the project to
improve transparency about government assistance agreements, and some do not
believe that the requirements should be overly burdensome. Some users believe that
the benefits would outweigh the costs and highlight that management would be in a
better position to determine the value than a user would. Other users indicated that
they realize the potential costs involved and would be willing to accept the terms
and conditions and perform their own assessment or valuation. Some private
company users indicated that the terms and conditions could provide a red flag
approach and allow them to ask additional questions. Some respondents that agreed
with this disclosure suggest (a) additional clarification, such as illustrative
examples, (b) further guidance on impracticability, and (c) limiting this disclosure
to only those amounts that are readily available or determinable from the
agreement.
Impracticability
24. Feedback indicates that proving impracticability may be just as costly and
burdensome on preparers as determining a value for assistance that has not been
recognized. Specific concerns have been raised for cases in which an arrangement
cannot be valued because of a lack of a ready market, comparable arrangements, or
because a reasonable quantitative estimate cannot be obtained. Some stakeholders
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indicate that in most cases, it would be impracticable to measure an amount, but the
cost of determining whether assistance is impracticable to measure could outweigh
the benefit of the disclosure to users. Other entities may conclude that if the
amount is not readily available, no further work is required to prove
impracticability. There is also a concern that the requirement could be interpreted in
various ways by reporting entities and audit firms, resulting in inconsistent practice.
Alternatives
25. The staff identified the following alternatives:
(a) Alternative 1: Unless impracticable, require disclosure about the amount of
government assistance received but not recognized directly in the financial
statements
(i) Alternative 1a: Alternative 1, plus provide additional clarification
about what is deemed impracticable.
(b) Alternative 2: Do not require disclosure about the amount of government
assistance received but not recognized directly in the financial statements
(i) Alternative 2a: Alternative 2, plus clarify that an entity is required to
disclose the amount of assistance received but not recognized if the
information is readily available within the agreement, in accordance
with the requirement to disclose the terms and conditions of an
agreement.
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Question 5 for the Board
Does the Board want to affirm its decision to require an entity to disclose,
unless impracticable, the amount of government assistance received but not
recognized directly in the financial statements?
a. If so, does the Board want to provide additional guidance on
impracticability?
b. If not, does the Board want to clarify in the final Update that an entity is
required to disclose the amount of assistance received but not recognized if
the information is readily available within the agreement, in accordance with
the requirement to disclose the terms and conditions of an agreement?
TOPIC 6: RESTRICTIONS
26. Question 7 asked preparers whether there are any restrictions (legal or otherwise)
that exist in government assistance agreements that would preclude an entity (for
example, confidentiality or proprietary reasons) from disclosing the information
required by the amendments in the proposed Update. Within Question 7, many
stakeholders expressed concerns (a) with individual agreements that may include
confidentiality clauses prohibiting the disclosures that could be required by this
project, (b) with disclosing proprietary information, and (c) with increased
transparency about government assistance that could affect government spending or
jeopardize ongoing or future negotiations with the government that result in a
competitive disadvantage.
Confidentiality and Legal Restrictions
27. Based on research, it is the staff’s understanding that many of the agreements
between a company and various government agencies are a matter of public record
at the jurisdictional level, depending on the country. Regardless, even though the
agreement may be a matter of public record, some stakeholders see a vast difference
in having the information be publicly available versus including disclosure around
such arrangements specifically in the notes to the financial statements, which are
reviewed by a much larger public audience. Some stakeholders indicated that they
would most likely need to gain approval of any disclosure on assistance from a
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government entity that would be required to be included in the financial statement
disclosures as a result of the proposed Update, if material.
Suggested Solutions
28. When addressing confidentiality clauses, feedback suggested adding guidance that
would require an entity to disclose the existence of an agreement to avoid breaching
confidentiality. Others recommended that the FASB look to the approach taken in
GASB Statement No. 77, Tax Abatement Disclosures. GASB 77 requires
government entities to provide certain disclosures about tax abatements but allows
the omission of specific information that is legally prohibited from being disclosed
and instead provides a general description of the arrangement. An underlying
message across the comment letters was to analogize to that standard in addressing
concerns about confidentiality disclosures.
Competitive Concerns
29. Some expressed concern about competitive and social disadvantages and suggested
that the proposed Update would put U.S. companies at a distinct disadvantage
because governments may be reluctant to entertain negotiations with companies
subject to the disclosure requirements and may reconsider assistance. Stakeholders
are concerned about disclosing information about assistance received from a
government in one foreign market that a competitor does not receive from the same
government.
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Question 6 for the Board
Does the Board believe that the final Update should be amended to clarify
that an entity may omit the disclosures if it is legally prohibited from
disclosing the information and that the entity would be required to identify the
information that it is omitting and reference the source of the legal
restriction?
a. If not, how does the Board believe that the issue of restrictions of the
disclosures should be addressed, if at all?
NEXT STEPS
30. The staff plans to address the following topics at future Board meetings:
(c) Transition
(d) Effective Date
(e) Private Company Considerations
(f) Costs and Benefits
(g) Sweep Issues (if any).
Board Meeting Handout
________________________
The staff prepares Board meeting handouts to facilitate the audience's understanding of the issues to be
addressed at the Board meeting. This material is presented for discussion purposes only; it is not intended
to reflect the views of the FASB or its staff. Official positions of the FASB are determined only after
extensive due process and deliberations.
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Disclosure Framework—Disclosure Review, Income Taxes
June 8, 2016
PURPOSE OF THIS MEETING
1. The purpose of this meeting is to finalize initial deliberations on income tax
disclosures. The following issues will be discussed:
(a) Disaggregation of indefinitely reinvested foreign earnings versus disclosure of
foreign held assets
(b) Disclosure of carryforwards
(c) Significant external review comments received on the forthcoming proposed
FASB Accounting Standards Update, Income Taxes (Topic 740): Disclosure
Framework—Changes to the Disclosure Requirements for Income Taxes
(d) Public business entity definition and disclosures by nonpublic entities (sweep
issue identified during drafting of the proposed Update on Topic 740)
(e) Cost and benefit analysis
(f) Permission to proceed to a vote by written ballot on the proposed Update on
Topic 740 and comment period.
BACKGROUND INFORMATION
2. The objective and primary focus of the disclosure framework project is to improve
the effectiveness of disclosures in the notes to financial statements by clearly
communicating the information that is most important and relevant to users of each
entity’s financial statements.
3. The focus of this part of the disclosure framework project is both to test the 2014
proposed FASB Concepts Statement, Conceptual Framework for Financial
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Reporting—Chapter 8: Notes to the Financial Statements’ ability to identify
relevant disclosures while improving existing disclosures in Topic 740, Income
Taxes.
ISSUE 1: DISAGGREGATION OF INDEFINITELY REINVESTED FOREIGN
EARNINGS VERSUS DISCLOSURE OF FOREIGN HELD ASSETS
4. Paragraph 740-30-50-2(c) requires a disclosure of the cumulative amount of
indefinitely reinvested foreign earnings and the amount of unrecognized deferred
tax liability related to those earnings if determination of that liability is practicable.
The proposed Concepts Statement indicates that the cumulative amount of
indefinitely reinvested foreign earnings could be disaggregated by country if it
could affect a user’s assessments of cash flows differently.
5. At the February 11, 2015 meeting, the Board decided that reporting entities should
disaggregate the indefinitely reinvested foreign earnings for any country that
represents at least 10 percent of the cumulative amount. At the October 21, 2015
meeting, the Board asked the staff to perform outreach with preparers and users
about the costs and benefits related to all of the tentative decisions to date.
6. Based on the results of the additional outreach performed, at the March 23, 2016
Board meeting, the staff recommended that rather than the Board requiring a
disaggregation of the indefinitely reinvested foreign earnings for any country that
represents at least 10 percent of the cumulative amount, it should require a
disclosure of the aggregate of cash, cash equivalents, marketable securities, and
loans related to indefinitely reinvested foreign earnings. Users indicated that they
are more interested in the timing and uncertainty of cash flows related to
indefinitely reinvested earnings rather than knowing the country in which those
earnings are located. At that meeting, the Board directed the staff to perform
additional outreach on the operability of that disclosure.
7. The staff is asking the Board to consider disclosures based on the following
possibilities :
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(a) Possibility A—Disaggregate the indefinitely reinvested foreign earnings for
any country that represents at least 10 percent of the cumulative amount
(retain the Board’s tentative decision).
(b) Possibility B—Disclose the aggregate of cash, cash equivalents, marketable
securities, and loans associated with indefinitely reinvested foreign earnings
(as presented to the Board at the March 23, 2016 meeting).
(c) Possibility C—Disclose the aggregate of cash, cash equivalents, and
marketable securities held by foreign subsidiaries.
(d) Possibility C′—Disclose Possibility C and include the amount and description
of encumbrances (such as currency controls or statutory dividend restrictions)
imposed on the assets held by foreign subsidiaries.
Question for the Board
1. Should an entity be required to disclose Possibility A, Possibility B,
Possibility C, and/or Possibility C′? The Board can decide on any one or a
combination of the possibilities.
ISSUE 2: DISCLOSURE OF CARRYFORWARDS
8. Currently, reporting entities are required to disclose the amounts and expiration
dates of operating loss and tax credit carryforwards for tax purposes. Feedback
initially indicated that there is diversity in practice on whether reporting entities
disclose the loss carryforward that results in a tax benefit or the tax benefit that
arises from that loss. There also is diversity in how the expiration dates are
reported. Users said that both amounts by time period of expiration would be
useful, and, therefore, the Board tentatively decided to change the requirement as
noted in paragraph 740-10-50-6A of the draft proposed Update on Topic 740 that
was distributed for external review :
A public entity shall disclose the following:
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a. The amounts of the carryforwards that give rise to the deferred
tax asset and the corresponding deferred tax asset by time period
of expiration.
Paragraph 740-10-50-8A of the draft proposed Update on Topic 740 that was
distributed for external review noted that a nonpublic entity shall disclose:
The amounts and expiration dates of operating loss and tax credit
carryforwards for tax purposes.
9. Additional feedback received indicates that in practice, if a reporting entity has the
same loss reported on two different tax returns (for example, a loss is reported at
both a federal level and state level), that loss is counted twice in reporting the
carryforward amount on a tax return basis.
10. The staff identified the following alternatives to modify the previous Board
decisions in paragraph 8 of this handout:
(a) Alternative A: Eliminate the proposed and existing requirements to disclose
carryforwards on a tax return basis (and retain the disclosure of the deferred
tax asset for carryforwards by time period of expiration).
(b) Alternative B: Disaggregate the proposed disclosure of carryforwards (both
the pretax and tax effect of carryforwards) by federal, state, and foreign.
Question for the Board
2. Should an entity only disclose the deferred tax assets for carryforwards
by time period of expiration (Alternative A), or should an entity disclose
carryforwards by federal, state, and foreign and by time period of expiration
(Alternative B)?
ISSUE 3: EXTERNAL REVIEW COMMENTS
11. The staff distributed a draft of the proposed Update on Topic 740 to external
reviewers and provided the Board with a summary of the significant comments
received.
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Question for the Board
3. Does the Board have any particular concerns or comments about any
external review comments?
ISSUE 4: PUBLIC BUSINESS ENTITY DEFINITION AND DISCLOSURE BY
NONPUBLIC ENTITIES (SWEEP ISSUES)
12. Paragraph 740-10-15-2 states:
The principles and requirements of the Income Taxes Topic are
applicable to domestic and foreign entities in preparing financial
statements in accordance with U.S. generally accepted accounting
principles (GAAP), including not-for-profit entities (NFP) with
activities that are subject to income taxes.
Therefore, all entities, including not for profits and employee benefit plans, are
within the scope of Topic 740 if they are subject to income taxes.
13. Accounting Standards Update No. 2013-12, Definition of a Public Business
Entity—An Addition to the Master Glossary, was issued in December 2013. The
primary purpose of Update 2013-12 was to amend the Master Glossary of the FASB
Accounting Standards Codification® to include one definition of the term public
business entity for future use in the Accounting Standards Codification. The
amendment in Update 2013-12 to the public business entity definition does not
affect existing requirements. That public business entity definition is used by the
Board, the Private Company Council, and the Emerging Issues Task Force in
specifying the scope of future financial accounting and reporting guidance.
Therefore, the staff considered replacing the term public entity that is currently in
Topic 740 with the term public business entity in accordance with the amendment
in Update 2013-12.
14. At the March 23, 2016 meeting, the Board decided that certain income tax
disclosures would not be required for private companies. No decisions were made
on exceptions for other nonpublic entities (not for profits and employee benefit
plans).
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15. The staff considered whether the proposed disclosure requirements specific to
private companies should be extended to not for profits and employee benefit plans
(that is, should those disclosures be applicable to nonpublic entities, which, as
defined in the Accounting Standards Codification, includes not for profits and
employee benefit plans).
Questions for the Board
4. Should the disclosures required of public companies in Topic 740
instead be required of public business entities as defined by the
amendments in Update 2013-12?
4(a). Should the amendments in the forthcoming proposed Update on
Topic 740 related to private companies be extended to not for profits and
employee benefit plans?
ISSUE 5: COST AND BENEFITS
16. The staff has performed extensive outreach with preparers, users, and other
stakeholders on the proposed disclosure enhancements to ensure that the perceived
benefits justify the perceived costs. It is important to note that after the Board made
its initial decisions, it directed the staff to perform additional outreach, specifically
focusing on the costs and benefits related to the disclosures as a complete package.
The Board decided to not require certain disclosures based on that outreach,
including:
(a) Disaggregation of foreign income (loss) before foreign income tax expense
(benefit) for any country that is significant to total income (loss) before
income tax expense (benefit)
(b) Disaggregation of foreign income tax expense (benefit) for any country that is
significant to the total income tax expense (benefit)
(c) Disaggregation of indefinitely reinvested foreign earnings for any country that
represents at least 10 percent of the cumulative amount of the indefinitely
reinvested foreign earnings.
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17. Preparers are expected to incur moderate transition costs as a result of the proposed
enhancements. The staff believes that, over time, processes will be put in place to
collect the information; therefore, the ongoing costs are not expected to be
significant. The staff also made the Board aware of some of the consequences of
country-level disaggregation.
18. The staff thinks that the proposed changes to the disclosures will benefit users by
improving their ability to assess:
(a) Entity-specific factors, particularly changes in tax laws and other
circumstances that a user is not expected to be aware of
(b) Different components of income taxes that could affect prospects for cash
flows differently
(c) Causes of changes in line items due to income taxes
(d) The relationship between various line items related to income taxes
(e) Differences between expectations based on statutory tax rates and effective
tax rates.
19. Furthermore, an entity’s decision to omit immaterial disclosure (if it had not done
so previously) may reduce the entity’s total cost of complying with all of the
disclosure requirements, although in certain cases there may be costs incurred to
assess whether a disclosure is immaterial.
Questions for the Board
5. Has the Board received sufficient information and analysis to make an
informed decision on the perceived costs of the proposed change? If not,
what other information or analysis is needed?
5(a). Does the Board think that the benefits of the proposed change justify
the costs?
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ISSUE 6: PERMISSION FOR VOTE BY WRITTEN BALLOT
20. The staff recommends that the comment period for the forthcoming proposed
Update on Topic 740 be at least 60 days but end no earlier than September, 30,
2016. Exposure periods for proposed Updates that significantly change disclosure
principles that affect some or all entities should be 60 days or longer. The nature of
the changes to disclosure requirements should be able to be reviewed by
constituents within the 60-day period. However, with an issuance date of early July,
the 60-day comment period would end just before the tax deadline. Therefore, the
staff thinks that extending the comment period past the September 15 corporate tax
return filing deadline will provide tax preparers and practitioners the opportunity to
give their feedback on the proposals.
Questions for the Board
6. Does the Board approve the proposed Update on Topic 740 for vote by
written ballot?
6(a). Are there any Board members that plan to dissent to the issuance of
the proposed Update on Topic 740?
6(b). What comment period does the Board select for the amendments in
the proposed Update on Topic 740?