Private entities should begin establishing a process for collecting data now to comply with Accounting Standards Update No. 2023-09 (ASU 2023-09) requirements for income tax disclosures. Issued in December of 2023, ASU 2023-09 changed how income tax provisions are disclosed in financial statement footnotes, requiring more granular data for accurate reporting.
Data capture is a valuable tool for companies navigating these new requirements, as the new tabular rate reconciliation and cash taxes paid disclosures require separate line-item reporting for items that were previously combined.
For public business entities, ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. For entities other than public business entities, ASU 2023-09 is effective for annual periods beginning after December 15, 2025.
Preparing for Enhanced Income Tax Disclosure Requirements Under ASU 2023-09
ASU 2023-09 introduces new disclosure requirements for all entities. Companies must now report pre-tax income or loss from continued operations for domestic and foreign categories. In addition, federal, state and foreign income tax expenses, and taxes paid, must all be reported separately. The updated tabular rate reconciliation and cash taxes paid disclosures require separate line-item reporting for items that were previously combined.
While the changes are intended to provide more transparency to investors, they add complexity for companies, especially those operating across multiple states or jurisdictions. Many organizations lack readily available, or easily accessible, data for these disclosures, straining the resources of a company’s corporate tax team.
Data capture, or the process of collecting, formatting and storing raw data, is an essential tool for companies looking to adapt their reporting methods and maintain compliance with the new standard.
Integration With Other Systems
Effective tax technology must integrate seamlessly with your existing financial reporting systems. The tax software should communicate with enterprise resource planning (ERP) platforms and other systems. Integration reduces the need for manual data entry, minimizes the risk of errors and allows for real-time data sharing across departments.
Why Private Entities Can’t Afford To Wait
Private entities have a limited window to establish a process for collecting and testing data needed to comply with ASU 2023-09. Private entities should develop a clear process and leverage their ERP platform to export data into tax provision and tax compliance software. This can be the company’s own software or that of their tax service provider.
These actions can reduce the need for manual data entry, minimize the risk of errors and allow for real-time data sharing across departments.
Technology Solutions for Targeted Insights
With an increasing number of technology solutions to choose from, our digital services consultants and our Corporate Tax practice team can help organizations navigate options and implement the right tools to fit their unique needs. Software like Sage Enterprise Intelligence supports data analysis through the process of inspecting, transforming and modeling data for better decision making.
Microsoft Power Automate is another process automation tool that can streamline data analysis to provide real-time insights and improved workflows. Machine learning algorithms can also provide organizational capabilities for larger datasets.
Your Guide Forward
Cherry Bekaert’s Corporate Tax practice is well-versed in the ever-changing tax guidelines and is equipped to help your organization stay compliant with new requirements. Our professionals have extensive corporate tax experience and take a personalized approach to planning and preparation for corporations, partnerships, limited liability companies, partnerships and individuals.
Our tax advisors collaborate with our digital consultants to provide the data-driven technology solutions that allow your business to thrive in a complex marketplace. Contact us today to see how we can assist with ASU 2023-09 disclosure requirements.
