ABA cautions FASB against changing income tax disclosure requirements

Existing income tax disclosures for investors, lenders and others who use financial statements to make capital allocation decisions are generally fair, and a proposal by the Financial Accounting Standards Board to expand those requirements wouldn’t improve a user’s assessment of the prospects for future cash flows, and may even lead to confusion and incorrect conclusions, the American Bankers Association said today in comments to FASB.

FASB in March published a proposed accounting standards update in response to investor requests for more transparency about income tax information. The proposed changes would mandate consistent categories and greater disaggregation of information in rate reconciliation, according to the agency. They also would as require income taxes paid disaggregated by jurisdiction. In its comments, ABA said it supports the general objective of the proposal but noted that the significant complexity of domestic and international tax rules makes it very difficult to provide concise and decision-useful disclosures. The association instead believes that the existing disclosure requirements of Accounting Standards Codification Topic (ASC) 740 “generally reflect a fair and faithful balance of tax disclosures needed to provide decision-useful information for users of general purpose financial statements.”

“Income taxation is complicated and easily misunderstood, especially when it intersects with financial accounting,” ABA said. “The deferred income tax model currently in ASC 740 effectively reconciles the temporary differences that exist between the recorded expense provisions of U.S. GAAP and that of the taxing jurisdictions. The prescribed disaggregation requirements in the exposure draft, however, will result in disclosures that are neither produced nor used by banks in managing the business and will, thus, be challenging for investors to consume in a useful manner.”