As part of its comprehensive review of all disclosure requirements, the Financial Accounting Standards Board has tentatively decided to revise the disclosure requirements around uncertain tax positions.
FASB decided recently it wants to drop the current requirement for companies to disclose the nature and estimate of the range for a reasonably possible change in the unrecognized tax benefit balance in the next 12 months. FASB also doesn’t want to require companies to disclose that an estimate of the range isn’t possible.
“Currently companies are supposed to put something in their disclosure that says we have this amount on the balance sheet and we expect it to change positively or negatively by X amount,” says Angela Evans, co-director of tax accounting and risk advisory services for EY. “Historically, that requirement has been a struggle for companies. It’s really hard to predict what’s going to happen in the next 12 months, other than to know that a statute of limitations is going to expire, because it’s hard to predict how IRS audits are going to go.”
In addition to dropping a disclosure requirement around uncertain tax positions, FASB also wants to expand another in the same area. The board decided to enhance an existing requirement to disclose a tabular reconciliation of the unrecognized tax benefits at the beginning and end of the period by also requiring disclosure of two additional elements.
First, FASB wants to require companies to separate tax settlements that rely on existing tax assets from those that are settled ultimately in cash. Second, FASB wants to see a breakdown of the ending balance of the liability for unrecognized tax benefits by the line items in the balance sheet in which the liability is recognized.
Requiring the new detail would cause footnote and balance sheet disclosures to be more aligned with one another after FASB adopted Accounting Standards Update No. 2013-11, says Evans. In ASU 2013-11, FASB changed the presentation requirements for unrecognized tax benefits when the company also has a net operating loss or tax credits that are carried forward. Some entities were recognizing unrecognized tax benefits separately while others were netting them against such carryforwards in some cases.
The 2013 guidance sought to end diversity in practice around how companies presented such tax benefits in the balance sheet. “Now these two disclosures would align the way balance sheet accounts are presented,” says Evans. EY explains FASB’s planned disclosure requirements in a recent alert.
FASB is looking at a number of disclosure requirements as part of its disclosure framework project, so it’s not clear when FASB might propose such changes in the disclosure requirements around uncertain tax positions.