Expand
Resize
Add to favorites
ASC 740-10-50-9 through ASC 740-10-50-14 requires certain disclosures about income statement amounts related to income taxes. For SEC registrants, S-X 4-08(h) requires certain incremental disclosures.

16.5.1 Amount of income tax expense or benefit

As discussed in ASC 740-10-50-10, reporting entities are required to disclose the amount of income tax expense or benefit allocated to continuing operations. In practice, this is frequently presented on the face of the income statement. In addition, reporting entities must also disclose amounts separately allocated to other categories of income in accordance with the intraperiod tax allocation provisions, such as discontinued operations and a cumulative effect of a change in accounting principle.

16.5.2 Effective tax rate reconciliation

As discussed in ASC 740-10-50-12, public entities (see FSP 16.3.1 for definition) are required to provide a tax rate reconciliation that reconciles income tax expense attributable to continuing operations to the statutory Federal income tax rate applied to pretax income from continuing operations (see FSP 16.8 for private entity disclosure requirements). Foreign public entities should use the income tax rate in the entity’s country of domicile. When a rate other than the US Federal corporate income tax rate is used, the rate and basis for using that rate should be disclosed.
Public entities can present the reconciliation using either dollar amounts or percentages. The reconciliation should include the estimated amount and the nature of each significant reconciling item.
Although ASC 740 does not define what “significant” means with regard to the rate reconciliation, S-X 4-08(h) does provide guidance. It requires disclosure of individual reconciling items that are more than 5% of the amount computed by multiplying pretax income by the statutory tax rate (e.g., for a US-based entity subject to the 21% statutory tax rate, any item that increases or decreases the tax rate by 1.05% or more). SEC registrants should ensure that items are not aggregated or disaggregated to avoid this requirement, that reconciling items below this threshold are displayed in appropriate categories, and that groupings are consistent from year to year.

16.5.3 Significant components of income tax expense

Both public and nonpublic entities are required to disclose significant components of income tax expense attributable to continuing operations.

ASC 740-10-50-9

The significant components of income tax expense attributable to continuing operations for each year presented shall be disclosed in the financial statements or notes thereto. Those components would include, for example:
  1. Current tax expense (or benefit)
  2. Deferred tax expense (or benefit) (exclusive of the effects of other components listed below)
  3. Investment tax credits
  4. Government grants (to the extent recognized as a reduction of income tax expense)
  5. The benefits of operating loss carryforwards
  6. Tax expense that results from allocating certain tax benefits directly to contributed capital
  7. Adjustments of a deferred tax liability or asset for enacted changes in tax laws or rates or a change in the tax status of the entity
  8. Adjustments of the beginning-of-the-year balance of a valuation allowance because of a change in circumstances that causes a change in judgment about the realizability of the related deferred tax asset in future years. For example, any acquisition-date income tax benefits or expenses recognized from changes in the acquirer’s valuation allowance for its previously existing deferred tax assets as a result of a business combination (see paragraph 805-740-30-3).

The sum of the amounts disclosed for the components of tax expense should equal the amount of tax expense that is reported in income from continuing operations. Insignificant components can be grouped in an “other” category. These items are typically discussed in a narrative disclosure.
ASC 740-10-55-212 through ASC 740-10-55-216 provides three examples that illustrate this disclosure requirement.

16.5.3.1 Investment tax credit disclosures

ASC 740-10-50-20 requires disclosures detailing the method of accounting (either the deferral method or the flow-through method) used to account for investment tax credits and the amounts involved. See TX 3 for investment tax credit accounting considerations.

16.5.3.2 Deferred taxes for changes in tax laws, rates, or status

As discussed in FSP 16.3.4.6, the effects of changes in tax laws or rates are recognized in income from continuing operations in the period that includes the enactment date. The tax effect of the enacted tax rates on current and deferred tax assets and liabilities should be determined at the date of enactment using temporary differences and currently taxable income existing as of the date of enactment.
Changes in tax rates may be retroactive to the beginning of the current year. In these instances, we believe it would generally be sufficient to disclose (1) the effect of the rate change on beginning-of-year deferred tax balances, and (2) the effect of the rate change on current and deferred taxes provided prior to the enactment date. Both of these items should be considered in the rate reconciliation. In any case, the amount(s) disclosed should be clearly described.
As discussed in ASC 740-10-45-19, if a reporting entity experiences a change in tax status (e.g., change from a nontaxable partnership to a taxable corporation), the deferred tax effects of that change should be disclosed as a component of income tax expense attributable to continuing operations. See TX 8.1 for discussion of changes in tax status.

16.5.4 Additional income tax disclosures for SEC registrants

S-X 4-08(h) requires certain additional disclosures that are not specifically required by ASC 740. They include:
  • Identifying the components of income (loss) before tax expense (benefit) as either foreign or domestic
  • Separately stating for each major component of income tax expense (i.e., current and deferred) the amounts applicable to US federal income taxes, foreign income taxes, and other income taxes

These disclosure requirements apply not only to continuing operations, but also to total pretax income and total tax expense. However, question 7 of SAB Topic 6.I., Accounting Series Release 149—Improved Disclosure Of Income Tax Expense, indicates that “overall” disclosures of the components of total income tax expense (i.e., current versus deferred, and US Federal versus foreign versus other) are acceptable. In other words, it is not necessary to make such disclosures separately with respect to each of the different categories (continuing operations, discontinued operations, other comprehensive income, etc.) in which income tax expense is reported.
In addition, SAB Topic 11.C, Tax Holidays (codified in ASC 740-10-S99-2), requires disclosure of tax holidays from income taxes that the reporting entity has been granted for a specified period. The disclosure should include the aggregate dollar and per-share effects of the tax holiday, and briefly describe the facts and circumstances, including the date on which the special tax status will terminate.
Expand

Welcome to Viewpoint, the new platform that replaces Inform. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory.

signin option menu option suggested option contentmouse option displaycontent option contentpage option relatedlink option prevandafter option trending option searchicon option search option feedback option end slide