PwC’s quarterly

accounting webcast

First quarter 2023

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Administrative matters

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FASB – Improvements to Income Tax Disclosures

Highlights

March 2022 - Revised project objective: To improve the transparency and decision usefulness of income tax disclosures - Revised the project
scope to primarily focus on disclosures related to the rate reconciliation and income taxes paid information
November 2022 - Board decisions
• Income taxes paid
– All entities to disclose year-to-date income taxes paid disaggregated by federal, state and foreign taxes on both and interim and
annual basis
– All entities to disclose income taxes paid disaggregated by individual jurisdiction based on a quantitative threshold of 5 pe rcent of total
income taxes paid on an annual basis only
• Rate reconciliation
– PBEs to disclose rate reconciliation information by 8 specific categories, at a minimum, with accompanying qualitative disclo sures on an
annual basis, using both dollars and percentages
– PBEs to separately disclose reconciling items by nature, on the basis of a quantitative threshold of 5 percent, within certain categories and
to separately disclose reconciling items by nature and by jurisdiction with the foreign tax effect category.
– Non PBEs provide a qualitative disclosure about specific categories and individual jurisdictions that result in a significant difference
between the statutory tax rate and the effective tax rate
• ED / Comment period
– ED issued on March 15, 2023
– Comment period of 75 days, ends May 30, 2023
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International tax developments - OECD Pillar Two update

• Pillar Two rules are intended to be enacted into domestic tax

legislation by each OECD member country in 2023
– Majority of Pillar Two legislation is anticipated to be effective in
2024 and beyond
– Throughout 2022, various jurisdictions (including the European
Union member states, the United Kingdom, Japan, and South
Korea) made significant advancements in enacting domestic
Various international tax What’s next? legislation
reform proposals • Preparers should continue to monitor developments of Pillar Two
legislation and assess potential accounting implications to be
recognized and disclosed upon enactment in interim and annual
financial statements
For additional information, refer to PwC’s:
– IASB issued an ED proposing amendments to IAS12 that would
• In brief: FASB staff weighs in on tax accounting for OECD Pillar
provide temporary relief to the deferred taxes arising from the
Two taxes
implementation of Pillar Two rules
• In brief: Global implementation of Pillar Two: proposed
– FASB staff that expressed that they believe the GloBE minimum
amendments to IAS12
tax is an alternative minimum tax under ASC 740
• Global in brief: Global implementation of Pillar Two and the
disclosure implications

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International tax developments - What is Pillar Two

Establishes a global framework of minimum taxation through use of an effective tax rate (ETR)

The minimum ETR (15%) is calculated a jurisdictional basis

Taxes paid on income or profits, as well as any taxes imposed in lieu of an income tax, are included in the ETR

Financial accounts of the parent entity are used to calculate the tax base and ETR at an entity level

An incremental tax liability arises when the ETR in a jurisdiction is below the agreed minimum rate

The Global Anti-Base Erosion (“GloBE”) Rules apply a system of top-up taxes – that is, an Income Inclusion Rule (IIR) and an
Undertaxed Payment Rule (UTPR) – that brings the total amount of taxes paid on a multinational enterprise’s excess profit in
a jurisdiction up to the minimum rate of 15%.

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Refresher on the Inflation Reduction Act and CHIPS Act of 2022
Tax law effective in 2023
In August 2022, President Biden signed the Inflation Reduction Act (IRA) and the Creating Helpful Incentives to Produce Semiconductors
(CHIPS) Acts into law. Significant provisions include:

• New corporate alternative minimum tax of 15% (CAMT) • Excise Tax on share buybacks
– equal to the excess of 15% of the applicable corporation’s – 1% excise tax on the net value of certain stock that
adjusted financial statement income over the CAMT foreign corporations repurchase during the tax year
tax credit for the tax year.
– applies to repurchases of stock after December 31, 2022
– CAMT is only due if a taxpayer’s tentative minimum tax
exceeds its regular tax plus base erosion and anti-abuse tax
(BEAT) • Climate, energy, and advanced manufacturing investment
incentives
– effective for tax years beginning after December 31, 2022
– certain incentives may be in the scope of ASC 740
– incentives outside the scope of ASC 740 (e.g., credits with
direct-pay options) may be akin to a government grant

★ Accounting impact generally expected to be limited in period of enactment.

Subsequent guidance released by IRS and Treasury should be evaluated for financial reporting purposes.

For additional information, refer to PwC’s:

• Tax Readiness Webcast: Overview of the Inflation Reduction Act
• In depth, Accounting for the Inflation Reduction Act and the CHIPS Act
• Tax Insight: Corporate book minimum tax to be effective for 2023
• Tax Insight: Book minimum tax- select international tax considerations
• Tax Readiness Webcast: ESG Tax Incentives in the Inflation Reduction Act
• Tax Readiness Webcast: Q3 financial reporting considerations
• Tax Insight: Inflation Reduction Act: Considerations for energy, utility, and resources companies
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Basic structure of a supplier finance program*

• Buyer establishes a program with a finance provider or intermediary that typically works as follows:

Step 1: Sends invoices for

purchased goods or services

Suppliers Buyer

Step 2: Confirms
Step 3: May make early the amount and
payment (typically at a validity of invoices
discounted amount at the
request of the supplier)

Finance provider/Intermediary Step 4: Generally, makes payment based

on the invoice terms

* Also referred to as reverse factorings, payables finance, or structured payables

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Trade payables or debt?

A range of factors and evidence should be considered

and weighed to determine if the substance of the buyer’s
liability has changed from trade payables to debt

Buyers should consider the following:

Has the buyer's obligation been modified so

significantly such that it should be considered a
new arrangement (i.e., debt)?
Trade
Debt
payables
Has the supplier agreed to atypical invoice terms
because a supplier finance program is in place?

Section 11.3.1.5 of our Financial Statement Presentation Guide provides a full list of indicators to consider. Also check out our recent podcast.

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New disclosure requirements for supplier finance programs

Required Annual disclosures: All calendar year-end

disclosures • Key terms of the program including (but not limited to): companies will disclose
– Payment terms, including payment timing and the basis for its determination the following:
– Assets pledged as security or other forms of guarantees
• Balance sheet presentation of related amounts (payables or debt) 2023
• Confirmed amount outstanding that remains unpaid by the buyer (regardless of whether those • All interim and annual periods:
amounts have been paid early by the financial intermediary or not)
– Key terms
• Rollforward of annual activity
– Beginning balance/Additions/Settlements/Ending balance – Balance sheet presentation
Interim disclosure: – Confirmed amount outstanding
• Confirmed amount outstanding that remains unpaid by the buyer 2024
Effective date Fiscal years beginning after December 15, 2022, including periods within those fiscal years • Interim periods:
• Exception for the rollforward, which is effective for fiscal years beginning after – Confirmed amount outstanding
December 15, 2023 • Annual period:
• Same date for both public and nonpublic companies – Key terms
• Early adoption is permitted – Balance sheet presentation
Transition • During the fiscal year of adoption, all annual disclosures (except the rollforward) must be disclosed – Confirmed amount outstanding
provisions in each interim period. – Rollforward of annual activity
• Retrospective application to each period in which a balance sheet is presented, except for the
rollforward, which should be applied prospectively.

See Section 11.3.1.5 of our Financial Statement Presentation Guide for further details and check out our recent podcast.

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Standards first effective in 2023 for certain public companies

Credit Losses and Insurance: Long Goodwill Codification

related amendments/ Duration Contracts Impairment Codification
Improvements
Troubled Debt (b) (a) Improvements
Restructurings
(a) Franchisors –
Revenue from
Contracts with
Customers
Business Fair Value Hedging- Disclosure of
Combinations: Portfolio Layer Supplier Finance
Contract Assets and Method Obligations
Contract Liabilities

(a) First effective in 2023 for SRCs

(b) First effective in 2023 for SEC filers other than SRCs; effective in 2025 for all other companies, including SRCs

For more information, see Effective dates of FASB standards for public companies

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Standards first effective in 2023 for certain nonpublic companies

Credit Losses and Goodwill Impairment Disclosure of

related amendments/ Supplier Finance
Troubled Debt Obligations
Restructurings

For more information, see Effective dates of FASB standards for nonpublic companies

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Disaggregation - income statement expenses

Background:
• The FASB received feedback from investors during its agenda consultation that further disaggregation of expenses should be a high priority.
• In February 2022, the FASB revised the objective of its existing “financial performance reporting” project to focus on improving the decision
usefulness of business entities’ income statements through the disaggregation of certain expense captions.

Current status:

• The FASB has tentatively decided to propose new footnote disclosures that include:
1. Disaggregation of each expense line item presented in the income statement (e.g., cost of sales, SG&A, R&D) based on the following
categories: (1) employee compensation, (2) inventory expenses, (3) depreciation of fixed assets, and (4) amortization of intangibles.
Qualitative description of remaining costs.
2. Disclosure of costs incurred and capitalized into inventory disaggregated by: (1) purchases of inventory, (2) employee compensation, (3)
depreciation of fixed assets, and (4) amortization of intangibles. Qualitative description of remaining costs.
3. Disclosure of “selling expenses” and description of the company’s policy for determining the type of expenses included within “selling
expenses.”
• An ED could be issued as soon as mid-2023.

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Disaggregation - income statement expenses example for COGS

Cost of goods sold 20X2 20X1

Employee compensation xx xx
Inventory expense xx xx
Depreciation of PP&E xx xx
Amortization of intangibles xx xx
Other xx xx
Total cost of goods sold xx xx

Cost of goods sold: Inventory expense 20X2 20X1

Beginning inventory balance xx xx
Purchases xx xx
Employee compensation xx xx
Depreciation of PP&E xx xx
Amortization of intangibles xx xx
Other xx xx
Ending inventory balance (xx) (xx)
Total inventory expense xx xx

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Segments
Objective
• FASB undertook this project to make certain improvements to the segment guidance to provide users with more decision-useful information
about the reportable segments of a public entity.
Status
• FASB issued an ED in October 2022. Comments were due in December 2022, and the FASB is analyzing the comment letters and will
discuss with the Board in a future meeting, with a goal of issuing a final standard by the end of 2023.
Impact
• The new guidance would not change the approach to determining or aggregating segments.
• Proposed changes are as follows:

New disclosure requirement: Significant segment expenses that are 1) regularly provided to the CODM and 2) used in the measure of
1 segment profit or loss

2 Creates an “other segment items” category of segment revenue less significant segment expenses less segment measure of profit/loss

3 Disclosures applies to companies with a single reportable segment

4 Certain annual disclosures now also required on an interim basis

Allows companies to report more than one measure of segment profit or loss, at least one measure should be the one most consistent
5 with GAAP amounts

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Division of Corporation Finance - SEC comment letter themes

1. Management’s 2. Non-GAAP measures* 3. Risk Factors - Impacts of 4. Segment Reporting

Discussion and Analysis Climate

5. Revenue Recognition 6. Fair Value Measurement 7. Business Combinations 8. Inventory and Cost of
Sales

* For more information on Non-GAAP measures, see the

9. Debt, Quasi-debt, 10.Disclosure recently updated Compliance & Disclosure Interpretations
Warrants and Equity Controls and ICFR

For more information on comment letter trends, check out our podcast miniseries on SEC comment letters in our Podcast library and our
SEC comment letter trends pages
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