Financial statements
aging
By 2025, companies will undergo a seismic shift in the tax information they reveal to the public. According to the accounting standards 2023-09, companies now need to provide enhanced tax information to the annual financial statements that include a more specific interest rate reconciliation, more disclosure of the place where companies pay their taxes and additional quality information explaining their tax operation. While this increased tax revelation is music in the ears of many investors and external interested parties who have long demanded more tax transparency, it has recently encountered a barricade from Republicans of the House. This article examines the new requirements of ASU 2023-09 and analyzes the unusual battle between the Council of Economic Accounting Standards and the Legislative Branch.
Accounting Standard Update 2023-09
On December 14, 2023, FASB was issued Asu 2023-09Noting the biggest change in tax disclosures in the financial statements of public companies from fin 48 in 2007. These new claims are in place for companies with a budgetary year after December 15, 2025, which means that much of public companies should comply with the new notification requirements.
Basic changes include greater disclosure of their tax activities. They can be dissolved in two basic elements.
First, public companies must now disclose their interest rates annually and provide additional information on reconciliation of the quantitative limits. The reconciliation of the interest rate is an existing revelation that receives the legal tax rate (today 21%) and creates a march map from this legal rate on the actual tax rate at which the company really pays for taxes. For example, in 2023, Apple They reported an effective tax rate of 14.7%. This means that although the corporate tax rate is 21%, Apple has paid quite a half lower, resulting in billions of dollars in savings. Specifically, Apple’s expected tax on the basis of corporate tax rate was $ 23.885 million. Reconciliation of interest rates shows the key categories that led to Apple to pay only $ 16,741 million in federal income taxes.
The new standard now requires specific categories, including state and local taxes, foreign tax impact, the impact of tax changes, the impact of cross -border tax laws, tax credit, changes in valuable compensation, unauthorized or unauthorized changes, Benefits of other important objects. Most importantly, the new notification rules require more uniformity in the notifications by demanding the reconciliation objects to be presented in a mixed (and not clean) and requires some qualitative discussions when compromising the quantitative limits set. These changes will drastically enhance the user’s user’s ability to understand how companies reduce their tax costs.
Secondly, public companies now have to disclose additional information on income taxes annually. Specifically, now it requires public companies to disclose the amount of income tax paid by individual jurisdictions when these jurisdictions make up more than 5% of total income taxes paid. Thus, companies with significant work abroad should now be more transparent in terms of the nature and extent of their work abroad. This change will shed extra light on where the companies operate and how these businesses affect their taxes paid.
The body’s republicans versus Fasb
Republicans in the House of Representatives are now threatening funding for FASB because of this change in the standard. According to ParachuteThe release of the proposal for expenditure by the House Credit Committee includes a provision that prevents the Securities and Exchange Commission from approved its annual budget unless Asu 2023-09 is withdrawn. This article also states that the big business groups and the Republicans of the House have asked FASB to eliminate these requirements.
These actions in the legislative industry are not the first time they have tried to influence FASB and financial accounting rules. For example, according to Congress filesIn May 1994, Congress pushed back to FASB in that they tried to prevent the entity from applying a mandatory expense of the Optional Options. Similar situations have arisen on FASB’s proposed rules concerning the accounting of fair value during the 2008 financial crisis and, in recent years, changes in accounting for leases.
The reasons for rejecting these new tax disclosure claims seem to be self -serving for large multinational companies that may want to maintain this information confidential. While the disclosure of more information can often be considered as a benefit to companies and their shareholders, as it enhances their information, previous tax disclosures, such as the fin 48, were treated with similar resistance. As discussed in The tax consultant; Companies that had to start revealing unrecognized tax benefits in their finances feel that the disclosures would provide a route map for IRS to boost their tax control. In a different way, companies were afraid that the benefits of improved tax transparency would be offset by the lowest realization of their tax benefits, especially those that are more uncertain.
Concerns about tax information to be disclosed now are understood by the Over 60 letters of comments received by FASB About new requirements and applying the standard. Specifically, large 4 accounting companies such as Pricewaterhousecoopersto submit a significant doubt as to whether Asu 2023-09 will achieve its predicted goals. In their comment, PWC makes statements such as: “We believe that changes to unrecognized tax benefits should be disclosed in the reconciliation of interest rates on individual jurisdictions. Although these are not statements that suggest that the new reporting standard should not be valid, emphasize the serious way of the Its placement.
Despite the concerns, many consultants emphasize the need for more transparent tax notifications to meet social liability requirements. For example, Kpmg He points out that the tax has emerged as an important element of ESG and that it is important for interested parties to meet these claims. In addition, the report by country, which is a key part of the OECD Beps project, has been applied to the whole world for most countries except the US, while Asu 2023-09 differs from the specifications Suggested actions of OECDIt provides some uniform revelation between US companies and their international bonds.
Although Asu 2023-09 seems to be a step in this direction, Congress has different ideas, creating an unusual clash between the legislative industry and the FASB.
