Income tax disclosures under ASC 740-10-50

• List the disclosures required of all entities and those required only of PBEs
• Apply the 5 percent threshold to income taxes paid by jurisdiction
• Identify disclosures ASU 2023-09 removed
• Tie the income tax note to the provision workpapers

Disclosures for all entities

ASU 2023-09 rewrote much of ASC 740-10-50. For annual periods, all entities disclose:

• Components of income tax expense attributable to continuing operations (ASC 740-10-50-9): current, deferred, investment tax credits, benefits of loss carryforwards, effects of enacted rate changes, and changes in beginning-of-year valuation allowances, among others.
• Intraperiod amounts (50-10): tax allocated to continuing operations and the amounts allocated to other items.
• Pretax income from continuing operations split between domestic and foreign (50-10A).
• Income tax expense from continuing operations split among federal (national), state and foreign (50-10B). Tax imposed by the country of domicile on foreign earnings goes in the domicile amount.
• Income taxes paid, net of refunds, split among federal (national), state and foreign (50-22), and by each individual jurisdiction where taxes paid are 5 percent or more of total taxes paid, net of refunds (50-23).
• Carryforwards: Statement 109 paragraph 48 requires the amounts and expiration dates of operating loss and tax credit carryforwards.
• Unrecognized tax benefit items (50-15): the total interest and penalties recognized in the statement of operations and in the balance sheet, and a description of tax years that remain subject to examination by major jurisdictions.
• Rate reconciliation: numerical for PBEs, qualitative for other entities, as covered in the rate reconciliation lesson.

Disclosures only PBEs give

• Tax effects of temporary differences (50-6): the approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax assets and liabilities, before valuation allowances. Other entities disclose the types of significant temporary differences and carryforwards but may omit the tax effects (50-8).
• Unrecognized tax benefit rollforward (50-15A): a tabular reconciliation of the beginning and ending balance, showing gross increases and decreases for prior-period and current-period positions, settlements and statute lapses, plus the total that would affect the effective rate if recognized.
• Tabular rate reconciliation with the eight categories and the state jurisdiction description.

What ASU 2023-09 removed

• The disclosure of the nature and estimate of the range of the reasonably possible change in unrecognized tax benefits in the next 12 months (or a statement that an estimate cannot be made).
• The cumulative amount of each type of temporary difference when a deferred tax liability is not recognized under the subsidiary and joint venture exceptions.

ASU 2023-09 also replaced the term public entity with public business entity throughout Topic 740.

Other required items

• An accounting policy for classifying interest and penalties (Interpretation 48 paragraph 19 requires a consistent election and paragraph 20 requires the policy to be disclosed).
• The policy for taxes on CFC inclusions, if applicable (see the cross-border lesson).
• Members of a consolidated return group that issue separate statements disclose the amounts of current and deferred tax expense and intercompany tax balances (Statement 109 paragraph 49).

Effective dates

PBEs apply ASU 2023-09 for annual periods beginning after December 15, 2024; all other entities for annual periods beginning after December 15, 2025. Transition is prospective with retrospective application permitted.

Audit focus

Use a disclosure checklist and tie each number to the provision: components to the current and deferred computation, taxes paid to the payable and prepaid rollforward and cash records, and the unrecognized tax benefit table to the rollforward. Taxes paid is a cash number; do not derive it from expense.

Taxes paid disclosure for Copperline Foods, Inc.