us 2015 37 fasb simplifies balance sheet classification deferred taxes
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8/15/2019 Us 2015 37 Fasb Simplifies Balance Sheet Classification Deferred Taxes
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FASB s im p l i f i es ba l a n ce sheet cl a s si f i ca t i o n o f
de fer r ed ta xes
What happened?
On November 20, 2015, the FASB issued Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes. The ASU is part of the Board’s simplificationinitiative aimed at reducing complexity in accounting standards.
Current GAAP requires the deferred taxes for each jurisdiction (or tax-paying componentof a jurisdiction) to be presented as a net current asset or liability and net noncurrent asset or liability. This requires a jurisdiction-by-jurisdiction analysis based on theclassification of the assets and liabilities to which the underlying temporary differencesrelate, or, in the case of loss or credit carryforwards, based on the period in which theattribute is expected to be realized. Any valuation allowance is then required to beallocated on a pro rata basis, by jurisdiction, between current and noncurrent deferredtax assets.
To simplify presentation, the new guidance requires that all deferred tax assets andliabilities, along with any related valuation allowance, be classified as noncurrent on the
balance sheet. As a result, each jurisdiction will now only have one net noncurrentdeferred tax asset or liability. Importantly, the guidance does not change the existingrequirement that only permits offsetting within a jurisdiction – that is, companies are
still prohibited from offsetting deferred tax liabilities from one jurisdiction againstdeferred tax assets of another jurisdiction.
Why is this important?
The new guidance conforms US GAAP and IFRS and is intended to reduce complexity infinancial reporting. The elimination of the requirement to classify deferred taxes betweencurrent and noncurrent should simplify financial reporting for many entities.
Companies should be aware that the change to noncurrent classification may have asignificant impact on working capital. For example, an entity that has a material deferredtax asset related to a restructuring charge, which is classified as a current deferred taxasset, would classify that deferred tax asset as noncurrent. The underlying restructuringliability, however, will remain classified as current.
What's next?
The new guidance will be effective for public business entities in fiscal years beginningafter December 15, 2016, including interim periods within those years (i.e., in the firstquarter of 2017 for calendar year-end companies).
For entities other than public business entities, the amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018.
No. US2015-37
November 23, 2015
A t a g l a n ce
The FASB has finalized its project to simplify the presentation of deferredtax assets and liabilities,impacting the balancesheet presentation formany reporting entities.The changes can beadopted immediately, ifdesired.
National Professional Services Group | CFOdirect Network – www.cfodirect.pwc.com In brief 1
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8/15/2019 Us 2015 37 Fasb Simplifies Balance Sheet Classification Deferred Taxes
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Early adoption is permitted for all entities as of the beginning of an interim or annualreporting period.
The guidance may be applied either prospectively, for all deferred tax assets andliabilities, or retrospectively (i.e., by reclassifying the comparative balance sheet). Ifapplied prospectively, entities are required to include a statement that prior periods werenot retrospectively adjusted. If applied retrospectively, entities are also required toinclude quantitative information about the effects of the change on prior periods.
Questions?
PwC clients who have questions about this In brief should contact their engagementpartner. Engagement teams who havequestions should contact the Income Taxteam in the National Professional ServicesGroup (1-973-236-7806).
Authored by:
Brett CohenPartnerPhone: 1-973-236-7201Email: [email protected]
Kyle QuigleyDirectorPhone: 1-973-236-7843
Email: [email protected]
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