More Work Needed on Income Tax Disclosure Plan
FASB expects to issue a brand-new proposal as part of its plan to make companies disclose more details about their income taxes, but the board needs to do more work before doing so. On January 23, the board asked its research staff to explore how companies should disaggregate income tax expense or benefits and income taxes paid by federal, state, and foreign amounts. In addition, the board wants more details on whether taxes paid on overseas earnings, even if the taxes are imposed by the United States, should be included in foreign taxes. The question is expected to become more relevant since the Tax Cuts and Jobs Act (TCJA) introduced the global intangible low-taxed income (GILTI) regime, which imposes a tax on foreign income in excess of the deemed returns on tangible assets of foreign corporations. FASB members struggled with the idea of labeling such taxes as foreign, as FASB staff research members suggested. “I get the point that we want to align tax with the earnings it’s associated with, but calling that a foreign tax is a little odd to me; it’s taxes on foreign earnings,” FASB Vice Chairman James Kroeker said. “I don’t know if we have the title right … It feels to me as a U.S. tax, but it just happens to be a U.S. tax on foreign earnings.”
Implementation Guidance for Credit Losses Standard Published
On January 23, the AICPA issued guidance for implementing FASB’s credit losses standard (ASU 2016-13, Financial Instruments—Credit Losses (Topic 326)]. FASB published the standard in June 2016 to correct an issue that emerged during the 2008 financial crisis and to require banks and other financial institutions to more quickly recognize losses on financial instruments that are losing value. The current expected credit losses (CECL) model, requires banks and other lenders to update their methods for calculating their loan loss allowances. Most banks expect these amounts to increase under the new accounting guidance. The standard also requires banks and other businesses to look to the foreseeable future; consider all reasonable and supportable losses that could happen over the life of the loan, trade receivable, or security in question; and set aside reserves to cover the losses. Currently, banks write down losses only after borrowers default on their payments under the incurred loss mode. “In light of the new accounting requirements, this publication will address accounting implementation issues identified by the task force, as well as provide in-depth coverage of audit considerations from risk assessment and planning to execution of the audit,” an AICPA spokesperson said, adding that it will regularly update accounting and auditing content in future editions of this guide as task forces finalize each implementation issue.
Institutional Investor Group Backs Bipartisan Insider Trading Bill
In a January 22 letter, the Council of Institutional Investors (CII) backed a bipartisan bill (H.R. 264) that seeks to tighten legal loopholes that critics say allow corporate insiders to engage in insider trading. Six years ago, CII petitioned the SEC directly to reform Rule 10b5-1 of the Securities Exchange Act of 1934, which allows company insiders to trade stock within a set timeframe and avoid insider trading liability. “Despite our repeated requests, the common sense improvements to Rule 10b5-1 that we first recommended in 2012 have not been adopted, proposed for public comment, or to our knowledge even thoughtfully considered,” CII wrote in the letter to House Financial Services Committee Chair Maxine Waters and Representative Patrick McHenry, the committee’s ranking member. “As a result, gaping loopholes in the rule remain that we believe will likely continue to be subject to abuse.” Under Rule 10b5-1, company insiders can file trading plans that allow them to buy or sell a set number of shares within a set period without worrying about insider trading accusations. Critics say the current system is vulnerable to abuses, allowing insiders to use the rule strategically in order to beat the market using material nonpublic information. Plans can be canceled when there is no news to trade on and kept in place when there is. Canceling a plan is not in itself considered a securities transaction. CII said it is pleased its recommended improvements have found their way into H.R. 624.