Public business entities are preparing for their first year-end under mandatory application of ASU 2023-09. Despite earlier uncertainty about whether the standard might be withdrawn, the accounting community is moving forward with implementation.
Recent Deloitte research indicates that most adopters are applying ASU 2023-09 retrospectively, while others are split between prospective adoption and an “unclear” approach. This trend suggests that companies value year-to-year comparability in their financial statements.
Although the new standard seeks to standardize disclosures in the rate reconciliation table, significant judgment is still required when mapping certain items. Examples include changes in tax laws and valuation allowances as a result of the tax law change, initial recognition of uncertain tax positions (and whether to net them with related positions or classify them under changes in unrecognized tax benefits), and use of the “other” category. For added transparency, companies may also choose to separately disclose state income tax benefits and state valuation allowances within the state income tax category, even though this is not required.
Further complexity arises from state conformity with recent federal tax law changes. Any law enacted during the quarter must be considered when measuring tax assets and liabilities for that period.
Big Four firms have issued updated guidance in recent months. Companies adopting this standard should consult with their assurance providers to address areas where interpretations may differ.
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