Article
Sample: Required ASC 740 Income Tax Provision Disclosures
ASC 740 requires corporations to make certain disclosures related to accounting for income tax provision. Generally, the disclosure rules relate to specific financial statements:
- Balance sheet, or the statement of financial position
- Income statement
- Related notes
To properly account for the income tax provision in its financial statements, a corporation is required to make certain disclosures:
- Amount of taxes payable or refundable for the current year
- Deferred tax liabilities and assets for the future tax consequences of events recognized in its current financial statements
Below is a comprehensive example of the required disclosures under ASC 740 for a public enterprise. This example is not intended to be used as a standard template because specific facts and circumstances can vary the exact form of disclosures. Tax professionals should pay careful attention to the exact ASC 740 reporting and disclosure requirements and their interplay with the facts and circumstances of a specific company.
[Download all the ASC 740 disclosure examples as a pdf.]
Sample disclosure of ASC 740 provision for income taxes
The provision for income taxes consists of:
Sample rate reconciliation disclosure
A reconciliation from the federal statutory income tax rate to the effective income tax rate is as follows:
Sample deferred tax assets and liabilities disclosure
Deferred federal and state income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial accounting purposes and the amounts used for income tax purposes. Significant components of the company’s net deferred income tax liability are as follows:
Sample financial statement footnote disclosures
The following example illustrates ASC 740 financial statement footnote disclosures for a public business entity.
Note that this illustration assumes that the company is a U.S. corporation and that there are no federal income tax consequences for the undistributed foreign earnings as the company expects its undistributed earnings to be subject to the 100% dividend-received deduction, are considered previously taxed (for example, under the Section 965 transition tax inclusion, the GILTI provisions, or Subpart F), and the amount of unrecognized tax liabilities related to investments in the foreign subsidiaries or undistributed earnings of domestic subsidiaries is not material. If unrecognized tax liabilities related to investments in foreign or domestic subsidiaries were material, they would need to be disclosed unless it is not practicable to determine the related deferred tax liabilities.
[Download all the ASC 740 disclosure examples as a pdf.]
Reduce risk and simplify ASC 740 reporting with Bloomberg Tax Provision
ASC 740 income tax provision planning and reporting can be complicated. Corporate tax professionals need to stay on top of changing tax laws, updated corporate facts, and reporting and disclosure requirements. Inaccurate entries can lead to expensive financial restatements, scrutiny from auditors and regulators, and reputational damage. The Financial Accounting Standards Board (FASB) has released a proposed update that would significantly affect your current process for calculating income tax provisions and preparing disclosures. Download our Guide to Proposed FASB Changes to ASC 740 for the latest developments regarding FASB’s proposed updates and how these changes will affect the tax provision process.
Tax provision software can reduce risk and simplify reporting by enabling more granular, audit-ready reporting without a lot of manual effort that’s usually needed to maintain cumbersome Excel workbooks. It simplifies annual and interim reporting work by creating a step-by-step workflow to prepare and review an income tax provision.
Bloomberg Tax Provision is the simplest solution to the complicated technical requirements involved in calculating and reporting your income tax provision. Move from your facts to the footnote with this easy-to-use software that helps you manage risk and reduce time spent in your ASC 740 process by providing a streamlined, controlled environment that leverages a balance sheet approach to comply with U.S. GAAP. Learn how Bloomberg Tax Provision helped IT provider Flexential save time and effort and ensure accuracy by simplifying its approach to tax provision.
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