Revising Income Tax Disclosure Rules Won’t be Simple

FASB could approach revisions to income tax disclosure rules through the lens of management, according to a recent panel discussion. “I happen to oversee tax at my company, and this area is unbelievably complicated,” said Brent Woodford, Executive Vice President, Controllership, Finance and Tax, at the Walt Disney Company. “I do think trying to come at this through the eyes of management as well might be a way to think about it,” he said on June 2 at the 40th Annual SEC and Financial Reporting Institute Conference hosted by University of Southern California’s Leventhal School of Accounting. Woodford said that there is huge disconnect between when taxes are paid and when they’re booked – audit settlements, prepayments. “Cash versus book is incredibly complicated, it’s hard to even say what is foreign income versus U.S. income,” he said. There has been an OECD [Organisation for Economic Co-operation and Development] project going on for years that is going to change everything, Woodford explained. “Most companies already have to do country-by-country reporting and that’s gotten its whole regime around that so this is going to be a really challenging one to make something useful for investors.” The tax project now focuses on providing investors with more information about where a company actually pays taxes, an area investors pressed the board on during its agenda consultation outreach. The effort would provide transparency investors have said they need to better understand jurisdictional risks and a company’s exposure to potential changes in tax legislation or potential opportunities.

Broad Public Approval for Latest Proposal to Facilitate LIBOR Shift

A recent FASB proposal that aims to facilitate reference rate reform was backed broadly by groups and accounting firms in comment letters received by the board in June, with some urging the board to continue monitoring the issue. In April, the board proposed two amendments to facilitate the shift from the London Interbank Offered Rate (LIBOR), giving most entities two more years—until the end of 2024—to complete modification of their impacted contracts. Other issues may be bubbling up, according to comment letters. “There are reference rates that are not expected to become unrepresentative until closer to this date, which may not give entities with exposure to those rates ample time to facilitate completing their reference rate reform activities,” Dan Gentzel, Managing Director, Global Hedge Accounting Chatham Financial Corp., said in a June 2, 2022, comment letter. “As a result, we believe the board should continue to monitor global reference rate reform activities and consider extending the sunset date further to provide impacted entities with additional time to modify contracts.” Similarly, the financial reporting committee of the Institute of Management Accountants (IMA) encouraged the FASB “to continue to monitor developments in the marketplace related to reference rate reform and to continue facilitating the transition away from interbank offered rates where warranted” in its June 5 letter. All respondents backed the proposal, including the Mortgage Bankers Association (MBA), a national association representing the real estate finance industry.


Chair Erica Williams Discusses PCAOB Priorities

During a financial reporting conference, PCAOB Chair Erica Williams provided her vision and priorities for the organization, which include robust inspection and enforcement programs to protect investors and a highly ambitious standard-setting agenda to improve audit quality. “I look at enforcement and the interconnection between enforcement and our standard setting as being things that are really intertwined … and I was a litigator by training, and so I deeply care about the importance of a robust enforcement program,” Williams, who became chair in January, said during a pre-recorded fireside chat with PCAOB Inspections Director George Botic at the 40th Annual SEC Financial Reporting Institute Conference hosted by the University of Southern California’s Leventhal School of Accounting on June 2. “From my perspective, our standards are really only as good as our ability and willingness to enforce them. And so, in many ways, for the PCAOB’s oversight ecosystem to function at its best, standard-setting, inspections, and enforcement really need to complement each other,” Williams said. “And our enforcement program needs to serve as an important deterrent against non-compliance—both a specific and a general deterrent.”