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16.2 Income taxes – scope and guidance
Publication date: 31 May 2024
us Financial statement presentation guide
ASC 740, Income Taxes, establishes presentation and disclosure requirements applicable to all entities subject to income taxes.
Regulation S-X 4-08(h) requires disclosures for public companies. In addition, there are several SEC Staff Accounting Bulletins (SAB Topics) that address presentation of disclosure of income taxes. These are codified in ASC 740-10-S99.
New guidance
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The new guidance includes the following updates.
- Removal of the definition of “public entity” from ASC 740 and replacement with the term “public business entity,” as defined in the Master Glossary (updated throughout chapter)
- Removal of the term “nonpublic entity” from ASC 740 and replacement with “entity other than public business entity” (updated throughout chapter)
- Replacement of the requirement to disclose the nature and estimated amount of significant rate reconciling items for public business entities with the requirement to disclose the rate reconciliation using eight specific categories (with guidance on how to categorize items within the prescribed categories) and reconciling items within certain categories over a quantitative threshold (see FSP 16.6.2)
- Requirement for entities other than public business entities to disclose significant differences between the statutory rate and the effective tax rate based on required categories and individual jurisdictions that contribute to the difference (see FSP 16.10)
- Addition of ASC 740-10-50-22, which requires all entities to disclose income taxes paid (net of refunds received) disaggregated between federal (national), state and foreign as well as ASC 740-10-50-23 which requires further disaggregation of income taxes paid (net of refunds received) to individual jurisdictions over a quantitative threshold (see FSP 16.7)
- Addition of requirements in ASC 740-10-50-10A and ASC 740-10-50-10B, which require that all entities disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign as well as income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign (see FSP 16.6.1)
These amendments are intended to align the requirement under GAAP with existing disclosure requirements for SEC filers under S-X 4-08(h) (see FSP 16.6.1). - Removal of the existing requirement in ASC 740-30-50-2(b) to disclose the cumulative amount of each type of temporary difference for which a deferred tax liability has not been recorded because of the exceptions to comprehensive recognition of deferred taxes related to subsidiaries and corporate joint ventures (see FSP 16.4A.4).
- Removal of the requirement in ASC 740-10-50-15(d) to disclose the nature and estimate of the range of reasonably possible increases or decreases in the unrecognized tax benefits balance in the next 12 months or to make a statement that an estimate of the range cannot be made
The new requirements will be effective for annual periods beginning after December 15, 2024 for public business entities (PBEs), and for annual periods beginning after December 15, 2025 for entities other than public business entities (non-PBEs), with early adoption permitted.
The guidance will be applied on a prospective basis with the option to apply the standard retrospectively.
Question FSP 16-1
ASU 2023-09 removed the definition of ”public entity” from ASC 740 and replaced it with the term “public business entity” as defined in the Master Glossary. Does the change in definition impact which reporting entities may be subject to certain disclosure requirements within ASC 740?
ASU 2023-09 removed the definition of ”public entity” from ASC 740 and replaced it with the term “public business entity” as defined in the Master Glossary. Does the change in definition impact which reporting entities may be subject to certain disclosure requirements within ASC 740?
PwC response
Yes. One of the key differences between the existing definition of public entity within ASC 740 and the definition of public business entity within the Master Glossary is that “public entity” was heavily focused on the reporting entity’s securities being traded on a public market. Under the definition of a public business entity, reporting entities who file or furnish financial statements with the SEC are considered public business entities even if their securities are not publicly traded.
As a result of the change in definition, there may be certain entities that were not considered public entities for purposes of the ASC 740 disclosure requirements prior to adoption of ASU 2023-09 that will be considered public business entities (e.g., broker-dealers or voluntary filers) after adoption of ASU 2023-09 and thus subject to new disclosure requirements in ASC 740. Every entity should evaluate its facts to determine whether it meets the definition of a public business entity so it can properly determine which ASU 2023-09 disclosure requirements apply.
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