The Elephant in the Boardroom

Part 3 of a 3-Part Series

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I just returned from the Credits & Incentives Symposium, hosted by IPT (Institute for Professionals in Taxation). One of the consistent themes I heard in many of the sessions I attended was a concern around compliance management of tax credits & incentives - from both industry and government agencies. It's clear that most companies are struggling with this issue and many have not implemented a solution to deal with it. All of the consultants I spoke with on the topic agreed it's a major issue that needs to be addressed for their clients.

All of the attendees were aware of the impending FASB Accounting Standards Update (ASU) on government incentives and most agreed that there's an unclear path on the processes companies will need to employ in order to comply with the new disclosure requirements. In case you haven't been following this series, the Financial Standards Accounting Board (FASB) is about to issue an Exposure Draft this month on its project “Disclosures by Business Entities about Government Assistance”.

Materiality

The Board chose to incorporate guidance on materiality based on the Disclosure Framework project as well as the proposed changes to Topic 235, Notes to Financial Statements.


                       "The proposed ASU will be released as an Exposure Draft which                              will start the 90-day clock for public comments."

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Confidentiality

Many discretionary incentive agreements include confidentiality or non-disclosure agreement clauses that may preclude a company from disclosing some details that would otherwise be required under this project.The Board is including a question in the proposed ASU about any obstacles that may exist as a result of such clauses.

Next Steps

According to the current Technical Plan, companies will be required to apply the disclosures on a modified prospective basis in the first set of financial statements following the effective date once the pronouncement is issued. The disclosures will affect all agreements in place at the beginning of the current period as well as those entered into after the beginning of that period. The Board is also encouraging retroactive application.

The Board's staff is drafting a proposed ASU based on their tentative decisions and all the details laid out in the current Technical Plan. The proposed ASU will be released as an Exposure Draft which will start the 90-day clock for public comments.

I'll be drafting a detailed White Paper on this topic once the Exposure Draft is released, including insight and feedback from industry professionals on how others are preparing for this impending pronouncement. To keep up on the latest, please follow me and my company BIGcontrols here on LinkedIn for updates.

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