Deferred Income Tax

By Thomas R. Wilson, CPA | May 23, 2018

The Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU), ASU No. 2015-17 – Income Taxes, Balance Sheet Classification of Deferred Taxes.  This ASU simplifies the presentation and disclosures of deferred income taxes.

Current GAAP requires deferred income tax assets and liabilities to be separated into current and noncurrent amounts in a classified balance sheet.  It was determined that little, or no benefit is derived from the current vs. noncurrent classification of deferred income taxes as the classification does not generally align with the time period in which the recognized deferred tax amounts are expected to be recovered or settled.  To simplify the presentation of deferred income taxes, this ASU requires that all deferred tax assets and liabilities be classified as noncurrent in a classified balance sheet.  The current requirement that deferred tax assets and liabilities of an entity be offset and presented as a single amount is not affected by this ASU.  As a result, an entity will only report either a long-term deferred tax asset or a long-term deferred tax liability.

Although the deferred income tax calculation is typically considered to be a “non-cash, paper entry”, if an entity has historically reported current deferred income tax assets or liabilities, the adoption of this ASU will have implications in calculating an entities current ratio (current assets divided current liabilities), if the current deferred income tax asset/liability was historically included in the current ratio calculation.

This ASU is effective for non-public for financial statements issued for annual periods beginning after December 15, 2017 (calendar year 2018), with public entities required to implement this ASU one year earlier.

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