FASB News
Inflation Reduction Act Could Impact Future Accounting Standards
FASB Chair Richard Jones on August 23 hinted that legislation in the Inflation Reduction Act that bases the minimum tax rule on book income could impact the board’s future standards-setting work, stressing “we are not focused on, nor do we set tax policy.” “Congress did choose to use book income as a starting point for certain entities paying a tax under the new Inflation Reduction Act tax bill,” Jones told the Financial Accounting Foundation (FAF), the trustee body with oversight responsibility for the board. “What is very helpful to note is that they have already made certain changes to what will be in GAAP earnings to come up with that tax and made certain adjustments.” The Inflation Reduction Act of 2022 (IRA), signed into law by President Biden on August 16, requires companies that report over $1 billion in book income to pay a 15% minimum tax rate on that book income, which they may already be satisfying. But those companies with over $1 billion in earnings that may have taken certain credits or deductions that lower their tax rate below 15% of their book income may be subject to additional tax liability. In the United States, the rule would be the first corporate minimum tax based on GAAP book income standards since the 1980s.
Proposal to Extend Accounting Rule for Low-Income Housing Tax Credits to Similar Investments
FASB issued a narrow proposal to expand the accounting method that is commonly only used for low-income housing tax credit (LIHTC) structures to other similar investments that generate income tax credits. This proposal would allow the proportional amortization method—a simple approach limited to LIHTC investments—to be extended to other federal tax credit projects that attract tax equity investments. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense (benefit). Investments in other tax credit structures are typically accounted for using the equity or cost method, which results in investment gains and losses and tax credits being presented gross on the income statement in their respective line items. The guidance aims to address concerns raised by financial statement preparers that the equity method is complex and does not fairly represent the economic characteristics or profitability of such investments.
IASB News
IFRS Foundation Appoints Three New Members to Global ESG Rulemaking Board
The IFRS Foundation, the trustee body with oversight responsibility of the International Sustainability Standards Board (ISSB), announced that three senior executives from Europe and Japan have been appointed to the board. The new members—Hiroshi Komori, Veronika Pountcheva, and Jenny Bofinger-Schuster—will take their seats in September, October, and December this year, the foundation said. “With these latest appointments we have a geographically balanced board with a broad range of expertise that puts the ISSB in good stead to respond to the global demand from companies, investors, regulators and others for better sustainability disclosures,” Trustee Chair Erkki Liikanen said in a statement. The ISSB was established in November 2021 to develop disclosure rules surrounding environmental, social, and governance (ESG) issues for global use. The board held inaugural meetings at its Frankfurt headquarters in July. The next meeting will take place in September. The three appointments will bring the ISSB’s membership to 13.
