ASU 2015-17 to simplify balance sheet classification of deferred taxes
March 8, 2016 | Authored by Mark B. Stamer CPA
March 8, 2016 – In November 2015, the Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) 2015-17. This update, part of the Simplification Initiative, is intended to reduce complexity in accounting standards and to align the presentation of deferred income tax assets and liabilities with International Financial Reporting Standards (IFRS).
What ASU 2015-17 Means
Currently, deferred income tax assets and liabilities are classified into current and noncurrent amounts on the classified statement of financial position. ASU 2015-07, which will be effective for non-public entities for annual periods beginning after December 15, 2017, with early adoption permitted, requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. The current requirement that deferred tax assets and liabilities be netted and presented as a single amount is not changed under the new ASU. While the presentation of deferred tax assets and liabilities will be affected by this ASU, it’s important to note that the methodology of the calculation of deferred tax assets and liabilities has not changed.
Why ASU 2015-17 Matters
While this may sound like an arcane topic, it could have a significant impact on the way that companies with significant deferred tax assets or liabilities evaluate their financial position. Many companies, for example, have current deferred tax assets and non-current deferred tax liabilities. For these companies, the implementation of ASU 2015-07 will result in a reduction in current assets, with no corresponding decrease in current liabilities. This will impact certain key ratios, most notably the current ratio, that are used by many companies to evaluate their financial position, and may also have an impact on ratios used to calculate compliance with debt covenants.
Adopt or Not?
While non-public companies still have up to two years before they will be required to implement this ASU, companies can benefit from proactively evaluating its effects and determining whether they will affect the way that financial position is evaluated. In certain cases, companies may find it advantageous to adopt the provisions of this ASU early, as it may have a positive impact on certain key ratios.
If you have any questions regarding this topic please do not hesitate to contact Mark Stamer at firstname.lastname@example.org or your Dopkins advisor and we can discuss your needs.
About the Author
Mark B. Stamer CPA
As a member of the Assurance Services Department, Mark primarily focuses on consulting services provide to a variety of the firm’s closely-held businesses. Mark helps streamline processes and provide management with financial information by researching, analyzing, and preparing financial statements. As a member of the Firm’s Forensic Accounting Group, he routinely assists in forensic accounting matters, litigation support services, and fraud prevention techniques.