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.


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.


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


(a) Alternative 1: Include NFPs within the scope of this project

(b) Alternative 2: Do Not Include NFPs within the scope of this project.


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


(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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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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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.

Page 1 of 8

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.


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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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.


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.


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?

Disclosures by Business Entities about Government ...

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