The release of Accounting Standards Update No. 2023-09 (ASU 2023-09), which amends FASB Accounting Standards Codification (ASC) Topic 740, marks a significant shift in how income tax disclosures are presented under U.S. Generally Accepted Accounting Principles (GAAP) for fiscal years beginning after December 15, 2024.
For middle-market companies — especially those with complex tax structures or multinational operations — this standard introduces new layers of complexity that demand both strategic foresight and operational agility for 2025 reporting and beyond.
To be compliant, efficient and accurate, organizations must adopt insight-driven tax provision processes. This includes mapping disclosure requirements to data sources, centralizing tax data from all relevant systems and teams, and documenting assumptions and judgments for traceability. Enhancing system granularity and aligning reporting calendars with financial timelines will further support timely and complete disclosures.
While there may be key implementation challenges associated with ASU 2023-09 compliance, automation and insight-driven processes can help address them.
Challenge #1: Data Collection and Systems Readiness
Under ASC 740, jurisdiction-level tax disclosures often exceed the capabilities of legacy systems. Many middle-market organizations still rely on spreadsheets or siloed tools that lack the granularity needed for compliance.
Solution
Automation can bridge this gap by extracting data from enterprise resource planning (ERP) systems, building jurisdiction-specific pipelines, and reducing manual errors. Integrating tax provision software with financial systems ensures consistent data and audit readiness.
To ensure accuracy, completeness, and audit readiness, organizations should consider the following practical data collection strategies:
Map Disclosure Requirements to Data Sources
- Identify all required disclosures (e.g., income taxes paid by jurisdiction, rate reconciliation components)
- Map each disclosure item to its source system (ERP, tax provision software, etc.)
- Ensure data lineage is documented for traceability
Centralize Tax Data
- Use a centralized tax data repository to consolidate inputs from the following to reduce fragmentation and improve consistency:
- Domestic and foreign subsidiaries
- Provision and compliance systems
- Treasury and finance teams
Automate Where Possible
- Implement automation tools to extract, transform and load (ETL) tax data
- Use standardized templates for recurring disclosures to reduce manual errors
Enhance Granularity
- Ensure systems can capture:
- Jurisdiction-level tax payments
- Detailed reconciling items for rate reconciliation
- Consider custom fields or tags in ERP systems to track tax-related transactions
Establish a Reporting Calendar
- Align tax data collection with financial reporting timelines
- Build in time for review and validation, especially for qualitative disclosures
Document Assumptions and Judgments
- Maintain clear documentation to support audit readiness and internal controls through:
- Materiality thresholds
- Categorization decisions
- Judgment calls on reconciling items
By adopting these practices, organizations can significantly improve the reliability and transparency of their tax reporting. The result is reduced risk of non-compliance, enhanced audit readiness, and a more efficient, scalable process that aligns with evolving regulatory standards.
Challenge #2: Judgment in Categorization
One of the more nuanced challenges introduced by ASU 2023-09 is the requirement to categorize reconciling items into predefined buckets, such as tax credits, valuation allowances and foreign tax effects. While this structure aims to enhance transparency and comparability across entities, it introduces complexity for organizations dealing with non-routine or hybrid transactions. For example, a one-time tax law change may impact multiple categories simultaneously, making it difficult to assign the item to a single bucket without oversimplifying its nature.
This categorization process demands a high level of professional judgment. Tax teams must evaluate the substance of each item, consider its financial and operational context, and determine the most appropriate classification. The challenge is compounded when items do not fit neatly into any one category or when their impact varies across jurisdictions or reporting periods. Inconsistent categorization can lead to confusion for stakeholders and may raise questions during audits or regulatory reviews.
Solution
To address this, many organizations are turning to tax automation platforms that incorporate rule-based logic and machine learning capabilities. These tools can flag ambiguous items, suggest likely categorizations based on historical patterns and apply consistent treatment across reporting cycles.
By reducing the reliance on manual judgment and enhancing the consistency of disclosures, automation not only improves compliance but also streamlines the reporting process, freeing up tax professionals to focus on strategic analysis and planning.
Case Study Call Out: Streamlining Tax Provision Through Automation
A mid-sized industrial manufacturer operating in five countries faced compliance risks under ASU 2023-09 due to fragmented tax data and manual processes. Cherry Bekaert’s Corporate Tax practice automated jurisdictional data collection, rate reconciliation and disclosure formatting using a standardized framework and integrated software. This cut manual effort by 40%, boosted audit readiness and enabled real-time, retrospective reporting.
Challenge #3: Materiality Assessments
Determining materiality for disclosure can be complex, especially when qualitative factors come into play. Middle-market entities often struggle to balance quantitative thresholds with the relevance of uncertain tax positions or foreign tax effects.
Solution
To support more informed decisions, automated dashboards can visualize the impact of reconciling items, helping tax teams assess materiality with greater clarity. Additionally, scenario modeling tools allow teams to simulate the disclosure implications of borderline items, enhancing judgment and audit readiness.
Challenge #4: Global Operations Complexity
Multinational entities face distinct challenges with ASU 2023-09 compliance, particularly when it comes to aggregating and reconciling tax data across jurisdictions. Tasks such as compiling taxes paid by country, aligning foreign tax rates with U.S. GAAP and managing currency translation and timing differences are often labor-intensive and prone to error. These complexities can hinder timely and accurate disclosures, especially when multiple systems and teams are involved.
Solution
To address these hurdles, automation offers a powerful solution. Centralized platforms can consolidate global tax data, apply consistent foreign exchange conversion methodologies, and reconcile local statutory rates with U.S. reporting requirements. This not only improves data integrity but also streamlines compliance across diverse tax environments. Additionally, workflow tools can track timing differences and ensure proper treatment of deferred items, reducing the risk of misstatements and audit findings.
By integrating automation and structured workflows, multinational tax teams can enhance visibility, reduce manual effort and improve the accuracy of jurisdictional disclosures. These tools also support better collaboration across geographies and functions, enabling organizations to meet income tax disclosure requirements with greater confidence and efficiency. When paired with scenario modeling and materiality dashboards, tax teams are better equipped to make informed judgments and deliver transparent, audit-ready disclosures.
Challenge #5: Narrative and Qualitative Disclosures
ASU 2023-09 goes beyond the numbers, requiring tax teams to provide clear and concise narrative disclosures for certain reconciling items. Crafting these disclosures in a way that is both informative and investor-friendly can be challenging, especially when dealing with complex tax positions.
Solution
Artificial Intelligence (AI)-powered drafting tools offer a solution by generating narrative content from structured data inputs, while integrated review workflows help ensure that the language aligns with investor expectations and regulatory standards.
Challenge #6: Timing and Transition
Navigating the timing and transition requirements of ASU 2023-09 can pose significant challenges, as organizations must align their fiscal calendars, historical data and evolving system capabilities with new reporting standards.
Solution
Fortunately, with a clear and actionable workflow, like the one below, tax teams can better prepare, especially public business entities (PBEs) facing 2025 reporting deadlines.
Assess Applicability and Timeline
First, confirm whether your organization qualifies as a PBE. The ASU 2023-09 standard becomes effective for fiscal years beginning after December 15, 2024. If your organization plans to adopt early, ensure readiness for 2025 reporting.
Evaluate System Readiness
Review your current tax reporting systems to determine whether they are compatible with ASU 2023-09 requirements. Pay close attention to gaps in jurisdictional reporting, rate reconciliation capabilities and disclosure formatting.
Plan for Retrospective Application
If your organization chooses to apply the standard retrospectively, prepare to generate comparative disclosures. Identify and retrieve the necessary historical data sets, and ensure they are properly formatted to meet the new reporting requirements.
Implement Automation Tools
To support a smooth transition to ASU 2023-09, implementing automation tools is essential. Tax provision software can streamline key processes by automating retrospective data extraction, enabling comparative reporting across periods, and formatting disclosures in alignment with the new standard. These capabilities not only reduce manual effort but also improve consistency, accuracy and audit readiness — critical factors for timely and compliant reporting.
Track Progress With Project Management Tools
Set up a transition timeline with key milestones, including:
- System upgrades
- Data validation
- Disclosure template development
- Internal review and audit preparation
- Assign responsibilities and monitor readiness across teams
Test and Validate
Run mock disclosures using historical data to simulate ASU 2023-09 reporting. Validate accuracy and completeness, then refine processes based on findings to ensure audit readiness.
How Cherry Bekaert Can Help
The combination of readiness, automation and strategic process design empowers tax teams to confidently tackle hurdles and meet the requirements of ASU 2023-09. This approach transforms tax reporting from a reactive obligation into a proactive, data-driven function that aligns with broader financial and operational goals.
For tailored guidance and resources to navigate these complexities, contact Cherry Bekaert’s Corporate Tax advisors. Our team is here to help modernize your tax provision process with automation, insight and strategic support.
