14.2 Balance Sheet

ASC 740-10

50-2 The components of the net deferred tax liability or asset recognized in an entity’s statement of financial position shall be disclosed as follows:

The total of all deferred tax liabilities measured in paragraph 740-10-30-5(b)
The total of all deferred tax assets measured in paragraph 740-10-30-5(c) through (d)
The total valuation allowance recognized for deferred tax assets determined in paragraph 740-10-30-5(e).

The net change during the year in the total valuation allowance also shall be disclosed.

50-3 An entity shall disclose both of the following:

The amounts and expiration dates of operating loss and tax credit carryforwards for tax purposes
Any portion of the valuation allowance for deferred tax assets for which subsequently recognized tax benefits will be credited directly to contributed capital (see paragraph 740-20-45-11).

50-4 In the event that a change in an entity’s tax status becomes effective after year-end in Year 2 but before the financial statements for Year 1 are issued or are available to be issued (as discussed in Section 855-10-25), the entity’s financial statements for Year 1 shall disclose the change in the entity’s tax status for Year 2 and the effects of that change, if material.

50-5 An entity’s temporary difference and carryforward information requires additional disclosure. The additional disclosure differs for public and nonpublic entities.

Public Entities

50-6 A public entity shall disclose the approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets (before allocation of valuation allowances).

50-7 See paragraph 740-10-50-16 for disclosure requirements applicable to a public entity that is not subject to income taxes.

Nonpublic Entities

50-8 A nonpublic entity shall disclose the types of significant temporary differences and carryforwards but may omit disclosure of the tax effects of each type.

14.2.1 Deferred Taxes

14.2.1.1 Required Level of Detail

When disclosing the tax effect of each type of temporary difference or carryforward as required by ASC 740-10-50-6, an entity should separately disclose deductible and taxable temporary differences. An entity can determine individual disclosure items by looking at financial statement captions (e.g., PP&E) or by subgroup (e.g., tractors, trailers, and terminals for a trucking company) or individual asset. An entity should look to the level of detail in its general accounting records (e.g., by property subgroup) but is not required to quantify temporary differences by individual asset. The level of detail used should not affect an entity’s net deferred tax position but will affect its footnote disclosure of gross DTAs and DTLs.

14.2.1.2 Definition of “Significant” With Respect to Disclosing the Tax Effect of Each Type of Temporary Difference and Carryforward That Gives Rise to DTAs and DTLs

Neither the ASC master glossary nor SEC Regulation S-X defines “significant,” as used in ASC 740-10-50-6. However, the SEC staff has indicated that to meet this requirement, public entities should disclose all components that equal or exceed 5 percent of the gross DTA or DTL.

14.2.2 Other Balance Sheet Disclosure Considerations

14.2.2.1 Disclosure of Temporary Difference or Carryforward That Clearly Will Never Be Realized

ASC 740-10-50-6 requires that a public entity disclose “the approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets (before allocation of valuation allowances).” Questions have arisen about whether it is appropriate to write off a DTA and its related valuation allowance when an entity believes that realization is not possible in future tax returns (e.g., situations in which an entity with a foreign loss carryforward discontinues operations in a foreign jurisdiction in which the applicable tax law does not impose an expiration period for loss carryforward benefits).

Paragraph 156 of the Basis for Conclusions of FASB Statement 109 states:

Some respondents to the Exposure Draft stated that disclosure of the amount of an enterprise’s total deferred tax liabilities, deferred tax assets, and valuation allowances is of little value and potentially misleading. It might be misleading, for example, to continue to disclose a deferred tax asset and valuation allowance of equal amounts for a loss carryforward after operations are permanently terminated in a particular tax jurisdiction. The Board believes that it need not and should not develop detailed guidance for when to cease disclosure of the existence of a worthless asset. Some financial statement users, on the other hand, stated that disclosure of the total liability, asset, and valuation allowance as proposed in the Exposure Draft is essential for gaining some insight regarding management’s decisions and changes in decisions about recognition of deferred tax assets. Other respondents recommended significant additional disclosures such as the extent to which net deferred tax assets are dependent on (a) future taxable income exclusive of reversing temporary differences or even (b) each of the four sources of taxable income cited in paragraph 21. After reconsideration, the Board concluded that disclosure of the total amounts as proposed in the Exposure Draft is an appropriate level of disclosure.

Therefore, while an entity is generally required to disclose the total amount of its DTLs, DTAs, and valuation allowances, there is no detailed guidance for when to cease disclosure of the existence of a worthless tax benefit, and the entity needs to use judgment. As noted above, it is appropriate to write off the DTA if the entity will not continue operations in that jurisdiction. However, if operations are to continue, it is not appropriate to write off the DTA and valuation allowance regardless of management’s assessment about future realization.

14.2.2.2 Disclosure of Outside Basis Differences

If an entity has two foreign subsidiaries operating in different tax jurisdictions and has a “taxable” outside basis difference (i.e., an outside basis difference for which, in the absence of the exception in ASC 740-30-25-1 through 25-6, the accrual of a DTL would be required) related to one subsidiary and a “deductible” outside basis difference related to the other, it is not acceptable for the entity to net the outside basis differences to meet the disclosure requirements of ASC 740-30-50-2. The disclosures required by ASC 740-30-50-2(b) for the cumulative amount of the temporary difference and by ASC 740-30-50-2(c) for unrecognized DTLs related to foreign subsidiaries should include only subsidiaries with “taxable” outside basis differences.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.