For many private companies, the 2026 year-end tax provision may feel far away. But the new income tax disclosure requirements under ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures could require more granular data, new reporting processes, and earlier coordination between tax, accounting, finance, and external advisers. 

The message for CPA, tax, and accounting teams is straightforward: do not wait until the 2026 provision cycle to start planning. The new standard expands annual income tax disclosures in ways that may affect rate reconciliation analysis, jurisdictional tax payment data, pretax income disaggregation, income tax expense presentation, and related controls. 

Why ASU 2023-09 Matters

ASU 2023-09 was issued to improve the information financial statement users receive about an entity’s worldwide operations, tax risks, tax planning, effective tax rate, and potential future cash flows. In practical terms, the amendments are expected to make income tax footnotes more transparent and more detailed—particularly around rate reconciliation and income taxes paid. 

For companies that already find ASC 740 reporting complex, the new disclosures may add pressure to year-end close timelines. The requirements can be cumbersome, and companies should begin gathering information early and establish appropriate processes and controls to capture the required data in a timely manner. 

Effective Dates: 2025 for Public Companies, 2026 for Many Nonpublic Companies

The adoption timeline depends on the type of reporting entity: 

Early adoption is permitted if annual financial statements have not yet been issued or made available for issuance, and application is generally prospective, although retrospective application is allowed under the transition guidance in ASC 740-10-65-9. 

For nonpublic calendar-year companies, that means the first required annual disclosures will generally appear in the 2026 annual financial statements. However, because the disclosures may require data that accumulates throughout the year, readiness should begin well before the 2026 year closes. 

As with all GAAP disclosures, management should evaluate materiality. ASU 2023-09 does not eliminate the need for professional judgment regarding whether specific disclosures are material to users of the financial statements. 

Key Disclosure Areas to Plan For

1. Rate Reconciliation: More Structure and More Explanation

ASU 2023-09 enhances rate reconciliation disclosures. For public business entities, the standard requires presentation of specified rate reconciliation categories in both percentages and currency amounts, with additional detail for significant items. 

For nonpublic entities, amended ASC 740-10-50-13 does not require presentation of a numerical reconciliation. Instead, nonpublic entities are required to provide qualitative information about significant reconciling items, including the nature and effect of specific categories and individual jurisdictions that cause a significant difference between the effective tax rate and statutory tax rate. 

The specified categories identified include: 

• State and local income tax, net of federal or national income tax effect 
• Foreign tax effects 
• Effects of changes in tax laws or rates enacted in the current period 
• Effects of cross-border tax laws 
• Tax credits 
• Changes in valuation allowances 
• Nontaxable or nondeductible items 
• Changes in unrecognized tax benefits 

Planning consideration: Even when a nonpublic entity is not required to present a numerical reconciliation, management will likely need a robust underlying analysis to support clear qualitative disclosures. Companies should evaluate whether their existing provision workpapers capture enough detail to explain the “why” behind rate changes, not just the final effective tax rate. 

2. Income Taxes Paid: Net of Refunds and Jurisdictional Detail

ASU 2023-09 also expands disclosures related to income taxes paid. After adoption, entities must disclose income taxes paid net of refunds received, disaggregated by federal, state, and foreign amounts under ASC 740-10-50-22. 

In addition, ASC 740-10-50-23 requires separate disclosure of income taxes paid, net of refunds, to each jurisdiction for which the amount meets or exceeds 5% of total income taxes paid, net of refunds received. 

This may be one of the most operationally challenging areas for some companies. Tax payment data may reside in multiple systems, bank accounts, ERP modules, payroll tax processes, state compliance files, or external preparer records. Refunds may be tracked separately from payments. Jurisdiction labels may not be standardized. 

Planning consideration: Companies should test whether they can produce a complete annual population of income tax payments and refunds by jurisdiction and whether the data can support the 5% jurisdictional threshold analysis. 

3. Pretax Income and Income Tax Expense Disaggregation

ASU 2023-09 adds annual disaggregated income statement-related disclosures through ASC 740-10-50-10A through 50-10B. These include disclosure of: 

• Income or loss from continuing operations before income tax expense or benefit, separated between domestic and foreign amounts; and 
• Income tax expense or benefit from continuing operations, separated by federal, state, and foreign jurisdictions. 

The required amounts must include income taxes on foreign earnings imposed by the relevant jurisdiction, if applicable. 

Planning consideration: Companies should evaluate how domestic and foreign pretax book income is identified, reviewed, and reconciled to the provision. Multinational groups may need to align legal entity data, management reporting, transfer pricing entries, consolidation adjustments, and provision calculations to support the new disclosures. 

Process, Data, and Control Implications

The technical disclosure requirements are only part of the adoption effort. The larger challenge may be building a repeatable process that produces reliable information under year-end reporting deadlines. 

Areas to assess include: 

• Data availability: Can the organization identify tax payments, refunds, pretax income, and tax expense at the level of detail required? 
• Jurisdiction mapping: Are federal, state, local, and foreign jurisdictions consistently defined across systems and workpapers? 
• Provision workpapers: Do current templates capture the rate reconciliation categories and supporting explanations needed for the footnote? 
• Materiality and thresholds: Has the company developed a process to evaluate significant reconciling items and the 5% income taxes paid jurisdictional disclosure threshold? 
• Internal controls: Are there appropriate review controls over data extraction, classification, aggregation, and disclosure drafting? 
• Coordination: Are tax, accounting, treasury, controllership, financial reporting, and external advisers aligned on roles and timelines? 

Because ASU 2023-09 may require information that is not currently collected in a disclosure-ready format, early dry runs can help identify gaps before they become year-end reporting issues. 

Practical Planning Timeline for Nonpublic Calendar-Year Companies

For nonpublic calendar-year entities adopting in 2026, the following phased approach can help reduce last-minute disruption. 

Readiness and Gap Assessment

• Review the requirements of ASU 2023-09 and identify which disclosures will apply. 
• Compare current tax provision workpapers and footnote disclosures to the new requirements. 
• Identify data owners for pretax income, income tax expense, tax payments, refunds, and jurisdictional reporting. 
• Inventory systems and sources used to track income tax payments and refunds. 
• Evaluate whether current rate reconciliation processes can support the required qualitative disclosures under ASC 740-10-50-13. 
• Consider a mock disclosure using prior-year data to identify data, process, or control gaps. 

Build and Test the Process

• Update provision templates and disclosure checklists. 
• Standardize jurisdiction codes and definitions. 
• Create procedures to capture income taxes paid net of refunds by federal, state, and foreign categories under ASC 740-10-50-22. 
• Develop a method to identify jurisdictions meeting the 5% disclosure threshold under ASC 740-10-50-23. 
• Align domestic and foreign pretax income reporting with the requirements in ASC 740-10-50-10A through 50-10B. 
• Define review controls and documentation expectations. 

Dry Run and Disclosure Drafting

• Perform an interim or preliminary year-to-date analysis of tax payments, refunds, and jurisdictional thresholds. 
• Draft sample qualitative rate reconciliation language for significant reconciling categories. 
• Review whether foreign, state, and local tax effects are appropriately classified and explained. 
• Discuss judgments and disclosure conclusions with auditors or external advisers before year-end. 
• Refine timelines for final year-end provision preparation and financial statement disclosure review. 

2027 Reporting Cycle: Finalize and Improve

• Complete the first annual ASU 2023-09 disclosures for the 2026 financial statements. 
• Document key judgments, data sources, and review procedures. 
• Capture lessons learned for future reporting cycles. 
• Update internal policies and close calendars based on the first-year adoption experience. 

Common Readiness Questions to Ask Now

Management teams and advisers should begin with a practical set of questions: 

1. Do we know which ASU 2023-09 disclosures apply to us based on our reporting status?
2. Can we produce tax payment and refund data by jurisdiction for a full annual period?
3. Do our systems distinguish federal, state, local, and foreign taxes consistently?
4. Can we identify jurisdictions that meet or exceed the 5% income taxes paid threshold?
5. Can we explain significant effective tax rate drivers in the categories contemplated by amended ASC 740?
6. Do our current provision workpapers support domestic and foreign pretax income disaggregation?
7. Have we designed controls over new data elements and disclosure judgments?
8. Have we built enough time into the close calendar for review and auditor questions?

The Bottom Line

ASU 2023-09 is more than a footnote update. For many companies, it will require a closer connection between tax technical analysis, data management, financial reporting, and internal controls. Public companies are already facing the new requirements for calendar-year 2025 annual periods, while nonpublic calendar-year companies should use the runway before 2026 financials close to prepare. 

A readiness assessment can help identify where current provision processes already align with the new disclosure requirements and where enhancements may be needed. Starting now can make the first-year adoption more efficient, more controlled, and less disruptive to the year-end reporting process. 

Need help evaluating readiness? Consider working with your accounting and tax advisers to perform a targeted ASU 2023-09 disclosure gap assessment, test available data, and develop a practical implementation plan tailored to your reporting timeline.