The Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) to improve income tax disclosures from investors, lenders, creditors and other allocators of capital that use the financial statements to make capital allocation decisions.

“The new standard responds to calls from investors for more transparent, decision-useful information about a company’s income taxes,” said FASB Chair Richard R. Jones in a statement. “It requires enhanced disclosures primarily related to existing rate reconciliation and income taxes paid information to help investors better assess how a company’s operations and related tax risks and tax planning and operational opportunities affect the company’s tax rate and prospects for future cash flows.”

Accounting Today reported that the amendments in the update require public companies to disclose, on an annual basis, specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, in situations where the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate.

The new standard should have an impact on how businesses report on their income taxes to investors and the public.

"Companies can already gather most of this information from tax returns filed with the IRS and internal financial records, so the FASB update is really just an expanded disclosure to the public," said Barclay Taylor, of counsel at law firm Morris, Manning & Martin LLP, in a statement reported by Accounting Today. "Now, companies are going to have to think harder about how the expanded disclosures of tax information might impact public perception. It will be interesting to see how this information is weaponized to mold tax policy narratives."