Apple Company Example

Apple’s financial statements comply with current standards that are set by U.S. GAAP and SEC. Under U.S. GAAP, ASC 740-10-45-4 states, “Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting” (Website). Apple classifies Deferred Tax Asset as a Current Asset on the Balance Sheet shown in Appendix A, Table 1.                                

Also, under U.S. GAAP, enacted tax rates are used to measure deferred tax assets and liabilities. Apple states in their 10-K, “Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled” (Apple 2015, 35).

Lastly, U.S. GAAP states, “The valuation allowance will reduce the deferred tax asset to the amount that is more likely than not to be realized” (Apple 2015, 35). Apple follows this by recording a valuation allowance to decrease deferred tax assets to the amount they believed “more likely than not” to be recognized. According to these examples, Apple follows current standards for reporting Deferred Tax Assets and Liabilities.  

 On the Consolidated Balance Sheet under Current Assets, Deferred Tax Asset was $5,546 in 2015. This number is shown in Table 1.  Compared to the 2011 10-K, Deferred Tax Assets have increased by less than $1,000 each year. This could be due to expenses being recognized before they are taxed, and the assets and liabilities having a different tax base. Under Non-Current Liabilities in Table 2, Deferred Tax Liabilities was $24,062 in 2015. In the 2011 10-K, Deferred Tax Liabilities was $8,159. This number has increased in increments of $4,000 ever year. This could be due to differences between tax positions taken on the amounts realized in the financial statements and on the tax return.

FIN 48, as amended, provides regulations for uncertain tax positions. It requires a disclosure in the footnotes to the financial statement. Differences between amounts that are realized in the financial statements and tax positions taken in a tax return will result in the following: “An increase in a liability for income taxes payable or a reduction of an income tax refund receivable or a reduction in a deferred tax asset or an increase in a deferred tax liability” (FASB 2006, 2).  If the tax position meets the “more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements” (FASB 2006, 2).  In Table 3, Apple shows their calculation of the total number of gross unrecognized tax benefits. Apple states that if they were to recognize $2.5 billion of the $6.9 billion tax benefits in 2015, they can state their tax position and follow the regulations for FIN 48.