Companies Should Use Same Accounting Method for More Tax-Credit Investments, FASB Says

The U.S. accounting typical setter on Wednesday voted to propose allowing firms to use the proportional amortization method for any tax-credit rating investments that satisfy certain criteria. The vote arrived about 10 months soon after it extra the challenge to its agenda showcasing rising challenges.

Renewable-vitality tax credits have gained popularity among the providers in recent yrs amid strain from buyers to action up their corporate sustainability attempts. The FASB’s proposal largely has an effect on general public and private money institutions, this kind of as banks and insurers, which often make these types of investments. Companies make investments in tax credits in section to lessen their tax liabilities.

Companies, which are at the moment necessary to use the fairness method—in which they document a part of investees’ gains and losses—to account for most tax-credit history investments, have said the proportional amortization method is a more precise reflection of the benefit of a selection of investments.

Accounting for tax-credit investments really should be consistently applied and not be dependent on the unique kind of system, stated Joshua Stein, vice president of accounting and fiscal administration at the American Bankers Association, a trade team.

“The present inconsistency in accounting for tax credit rating investments negatively impacts buyers of economical statements, preparers, and in the end all those who are served by the underlying jobs,” Mr. Stein final 12 months stated in a letter to the FASB. The ABA did not promptly reply to a ask for for comment.

The FASB aims to concern a formal proposal in August and will permit the public 45 days to remark on it, a spokeswoman explained. The board could finalize the rule next calendar year, she said.

“There is some wish to broaden the enjoying subject,” FASB board member Christine Botosan reported Wednesday, referring to use of the proportional amortization approach.

Publish to Mark Maurer at [email protected]