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Amendments to Income Tax Disclosure Requirements

Income Tax disclosures remain an essential element of financial reporting for all reporting entities. It provides financial statement users with information to better assess how an entity’s operations and related tax risks, tax planning, and operational opportunities affect its tax rate and prospects for future cash flows. Disclosure enhancements focused on transparency and decision usefulness through disaggregation have remained a key focus area project for FASB. After multiple iterations for a proposed overhaul of the income tax disclosures dating back to 2016, in 2021, the FASB’s technical agenda included a project to improve and enhance income tax disclosures, which would seek to provide more focused disaggregated information about the effect of the entity’s operations, tax planning strategies, and tax risks on the overall effective tax rate and future cash flow prospects. With this objective in mind, the project primarily focused on more detailed information about income taxes paid and rate reconciliation.

After due process, FASB, in its continuous efforts to improve the disclosure requirements for Income taxes in the financial statements, has introduced amendments to Topic 740, Income Taxes. The amendment results from FASB’s extensive outreach to the users of financial statements, who indicated the need for more disaggregated income tax information, particularly jurisdictional information, to assess global tax risk.

This publication provides an overview of the requirements, implementation matters, and critical considerations of amendments made by FASB to Topic 740 through Accounting Standard Update ASU 2023-09. 

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