No Heavy Focus on Perks for Government Assistance Research Project

Trying to scope recognition and measurement accounting rules on government assistance could prove tricky, according to recent discussions at a FASB advisory meeting. When the board was developing disclosure rules, which took about seven years until their issuance last year, much of its efforts were hindered due to the plethora of items that are government incentives, FASB Vice Chair James Kroeker said at the March 15 Financial Accounting Standards Advisory Council (FASAC) meeting. A standard on recognition and measurement therefore might be more easily done if the board focused on government grants, as opposed to government assistance. “The entire function of course on governments is to assist citizenry, commerce, and other things,” said Kroeker. “When you get into government assistance you could start thinking about when a state government airs a vaccine commercial—is that a form of government assistance to pharmaceutical companies?” he said. “I don’t think that that’s the kind of thing that we’re looking at but that’s what we got bogged down with in the disclosures—everywhere the government touches an entity ‘is that in the scope or not?’ So I think parsing it between grants and assistance is a way to maybe produce achievable standard setting.” FASB plans to issue an invitation-to-comment on the topic either in April or May to solicit public comment.

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Will Income Tax Accounting Disclosure Rules Change?

On March 23, FASB discussed income tax accounting disclosure rules to address feedback it recently received from the public. Board discussions could clarify the fate of a 2019 proposal that aimed to change some disclosure provisions in ASC Topic 740, “Income Taxes.” Income tax disclosures generated notable responses from the board’s Invitation-to-Comment (ITC) 2021-004, “Agenda Consultation,” the document the board is using to develop a new five-year technical agenda. Income taxes were cited by about 10% of the 520 comment letters the ITC garnered as a project that should be “deprioritized, removed, or redefined to better meet investor and financial statement users’ information needs,” a December 2021 staff analysis stated. “Investors, a trade group, and a state CPA society said that greater disaggregation of income taxes should be a top priority.” Several said the current income tax disclosures are not meaningful and useful to investors, and requested that the board consider requiring public companies to disclose income tax information on a country-by-country level, consistent with information provided to the IRS. Those in favor of country-by-country reporting said the information would enable investors to better assess global tax risks and opportunities, provide greater visibility of high-risk transactions, and ensure the relevancy of income tax reporting standards with changing investor expectations. Conversely, one trade group representing tax preparers “expressed concerns with requiring disaggregation of income taxes at this level and said that, given the complexity of the information, requiring tax disclosures on a country-by country level could potentially be misleading to an investor’s analysis.” The board’s last discussion on income tax disclosures was in February 2020.

Rule on Affordable Housing Tax Credit Investments Might Be Extended to Other Programs

The accounting rule that was specially developed for reporting low-income housing tax credit (LIHTC) investments might be expanded to include more federal and state tax credit investment programs. FASB’s Emerging Issues Task Force (EITF) held a discussion on March 24 to decide whether the proportional amortization method that is currently limited to reporting LIHTC investments, should be expanded to include New Markets Tax Credit (NMTC) programs, Historic Rehabilitation Tax Credit (HTC) programs, Renewable Energy Tax Credit (RETC) programs, and other similar programs. These investments can be accounted for using either the cost, equity, or proportional methods; the cost or proportional methods are reportedly the most common. Under the proportional amortization method, the initial cost of the investment is spread out in proportion to the tax credits and other tax benefits allocated to the investor. According to prior discussions, the banking sector heavily invests in tax credit investment programs and favors extending the proportional amortization method beyond LIHTC to other programs, believing it to be a better reflection of the economics of such programs.