What it is
Deferred tax assets are recognized in full and then reduced by a valuation allowance if it is more likely than not that some portion will not be realized. This workbook rolls each deferred tax asset and liability from beginning to ending balance, schedules carryforwards by vintage and expiry, and records the positive and negative evidence behind the allowance.
The computation tab applies the four sources of taxable income in ASC 740-10-30-18 and shows the allowance they indicate, compared with the allowance recorded. The arithmetic supports the judgment; it does not make it. Run it once for each jurisdiction and character of income.
When to use it
- Supporting the year-end valuation allowance assessment for a company with losses or carryforwards.
- Auditing management’s realizability conclusion and the rollforward of deferred balances.
- Preparing the deferred tax components and valuation allowance rollforward for the income tax note.
What’s inside
- Rollforward by component with provision, OCI and acquisition columns and a tie to support
- Carryforward schedule with expiry, annual limitation, planned use and tax-effected amount at risk
- Evidence log with weights and a cumulative income check over the three most recent years (a convention: ASC 740 does not define recent years)
- Valuation allowance computation by source of taxable income and the allowance rollforward
Standard cited
This template follows ASC 740-10-30. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use.
Questions
What standard is the allowance judged against?
More likely than not, meaning a likelihood of more than 50%, that the deferred tax asset will be realized, based on all available positive and negative evidence (ASC 740-10-30-17 and 30-18). Negative evidence such as cumulative losses in recent years is hard to overcome without objectively verifiable positive evidence.
What are the sources of taxable income?
Future reversals of existing taxable temporary differences, future taxable income excluding those reversals and carryforwards, tax-planning strategies, and taxable income in carryback years. The sources must be of the right character and in the same jurisdiction as the asset.
Do I need a separate computation for each jurisdiction?
Yes. A federal ordinary loss does not support a state capital loss asset, and a state asset is supported only by state income. Copy the VA Computation tab for each jurisdiction and character of income.
Are annual limitations after an ownership change included?
There is an input for an annual limitation on each carryforward. The amount comes from the entity’s own analysis of any ownership change (for federal purposes, IRC section 382), so enter it from that analysis.
Related templates
- Income Tax Provision Workbook (ASC 740)
- Rate Reconciliation Template (ASC 740)
- Going Concern Evaluation Memo (AU-C 570 / ASC 205-40)
Last updated 11/05/2026. All free templates.