FASB simplifies presentation of deferred income taxes

By Ken Tysiac

A new standard FASB issued Friday is designed to improve the way deferred taxes are classified on organizations’ balance sheets.

Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, is part of FASB’s simplification initiative. The initiative is designed to reduce complexity in financial reporting without sacrificing the quality of information provided to users.

Under current GAAP, an entity is required to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. Stakeholders have informed FASB that this requirement results in little or no benefit to financial statement users and is costly for financial statement preparers.

The amendments issued Friday are designed to simplify the presentation of deferred income taxes. The new standard requires deferred tax liabilities and assets to be classified as noncurrent in a classified statement of financial position.

The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments. The new standard will align the presentation of deferred income tax and liabilities with IFRS, which requires deferred tax assets and liabilities to be classified as noncurrent in a classified statement of financial position.

The standard applies to all organizations that present a classified balance sheet. For public companies, the amendments take effect for financial statements issued for annual periods beginning after Dec. 15, 2016, and interim periods within those annual periods. For private companies, not-for-profits, and employee benefit plans, the amendments take effect for financial statements issued for annual periods beginning after Dec. 15, 2017, and interim periods within annual periods beginning after Dec. 15, 2018.

Early application is permitted for all organizations as of the beginning of an interim or annual reporting period.

Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.

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