ASU 2023-09 vs IAS 12 Income Tax Disclosures: Side-by-Side Comparison

Both FASB and the IASB set out to fix the same problem: income tax footnotes that told investors almost nothing useful about a multinational's real tax position. The solutions they produced, ASU 2023-09 and the amended IAS 12, share a common diagnosis but diverge sharply on prescription. For finance teams filing under both frameworks, or benchmarking one against the other, the differences are not cosmetic.

Key takeaway: ASU 2023-09 is more prescriptive than IAS 12 in almost every dimension, eight mandatory rate reconciliation categories versus a principles-based approach, a bright-line 5% threshold versus materiality judgment, and a specific GILTI/Subpart F categorisation rule with no IFRS equivalent. The Pillar Two treatment is the sharpest divergence: IAS 12 mandates a deferred-tax exception and requires separate disclosure of Pillar Two current tax expense; ASU 2023-09 has neither.

For a full walkthrough of ASU 2023-09's mechanics on their own, see Finrep's ASU 2023-09 Income Tax Disclosures: 2026 Compliance Guide. This article focuses on what changes when you hold the two frameworks side by side.

What Are the New Income Tax Disclosure Requirements Under ASU 2023-09?

FASB issued ASU 2023-09 on December 14, 2023, amending ASC Topic 740 to require substantially more granular income tax disclosures. The update is effective for public business entities (PBEs) for annual periods beginning after December 15, 2024, meaning calendar-year PBEs must comply for fiscal year 2025, with first filings appearing in early 2026. Non-public entities follow one year later.

The FASB's project page summarises the core requirement: PBEs must disclose eight specific rate reconciliation categories annually, plus additional disaggregation for any item that meets or exceeds 5% of pretax income multiplied by the applicable statutory rate.

The eight mandatory categories are:

1. State and local income tax, net of federal effect
2. Foreign tax effects
3. Enacted changes in tax laws or rates
4. Effect of cross-border tax laws (e.g., GILTI, BEAT, FDII)
5. Tax credits
6. Changes in valuation allowances
7. Nontaxable or nondeductible items
8. Changes in unrecognised tax benefits

ASU 2023-09 also requires all entities (public and private) to disclose income taxes paid, net of refunds received, disaggregated by federal, state, and foreign, and by individual jurisdiction where taxes paid equal or exceed 5% of total taxes paid. As PwC's Viewpoint guidance clarifies, the disclosure is computed on a net-of-refunds basis, not gross payments.

Two disclosures that previously existed under ASC 740 are removed: the requirement to disclose the nature and estimation of future changes in unrecognised tax benefits, and the cumulative amount of temporary differences where a deferred tax liability is not recognised for subsidiaries and corporate joint ventures.

How Does IAS 12 Compare on Rate Reconciliation?

IAS 12 requires a numerical reconciliation between tax expense and the product of accounting profit multiplied by the applicable tax rate, but it does not mandate any specific categories. Under IAS 12 paragraph 81(c), the categorisation is left to management judgment, with entities required to explain significant differences. That is a principles-based standard, not a rules-based checklist.

IAS 12 also gives preparers a format choice that US GAAP does not: the reconciliation can be presented as either a dollar-amount reconciliation or an effective-rate reconciliation (comparing the average effective tax rate to the applicable statutory rate). ASU 2023-09 requires both dollar amounts and percentages, with no option to present only one.

On materiality, IAS 12 has no bright-line percentage threshold equivalent to ASU 2023-09's 5%. Materiality under IFRS is assessed qualitatively and quantitatively per IAS 1 and the Conceptual Framework, which means IFRS preparers exercise judgment about which jurisdictions and items to disclose. In practice, this means two companies with identical tax profiles could produce materially different IFRS disclosures without either being wrong.

The Master Comparison Table

| Dimension | ASU 2023-09 (US GAAP) | IAS 12 (IFRS) | |---|---|---|| | Rate reconciliation format | Dollar amounts AND percentages (both required) | Dollar amounts OR effective-rate reconciliation (preparer's choice) | | Mandatory categories | 8 specific categories (PBEs) | None prescribed; principles-based | | Quantitative threshold | 5% of pretax income x statutory rate (bright-line) | No specified percentage; IAS 1 materiality judgment | | Taxes paid disaggregation | By federal/state/foreign + individual jurisdiction at 5% threshold | By jurisdiction where material (no specified threshold) | | Pillar Two deferred tax | No mandatory exception; standard ASC 740 applies | Mandatory temporary exception (no opt-out); effective Jan 1, 2023 | | Pillar Two current tax | No separate disclosure required | Must be disclosed separately from other income tax expense | | Reconciliation format choice | None; both amounts and percentages required | Preparer chooses dollar or effective-rate format | | GILTI/Subpart F categorisation | Included in domicile jurisdiction (federal), not foreign | No equivalent rule; substance-over-form analysis | | Transition method | Prospective (retrospective permitted) | Varies by amendment; retrospective often default | | Effective date (public entities) | Annual periods beginning after Dec 15, 2024 | Pillar Two amendments: Jan 1, 2023; broader amendments: Jan 1, 2025 | | Effective date (non-public) | Annual periods beginning after Dec 15, 2025 | Same as public (IFRS does not distinguish by entity type) | | Private company relief | Qualitative disclosure only (no quantitative reconciliation required) | No equivalent tiered relief |

How Does Each Standard Treat Pillar Two Global Minimum Tax?

This is the sharpest divergence between the two frameworks, and the one most likely to trip up dual-reporters.

Under IAS 12, the IASB introduced a temporary mandatory exception in May 2023 to the recognition and disclosure of deferred tax assets and liabilities arising from Pillar Two legislation. As the IFRS Foundation stated: "The IASB has decided to introduce a temporary mandatory exception to the requirements in IAS 12 to recognise and disclose information about deferred tax assets and liabilities related to Pillar Two income taxes." Entities cannot opt out. The exception was effective immediately for annual periods beginning on or after January 1, 2023.

The IAS 12 Pillar Two amendments also require three specific disclosures:

• A statement that the entity has applied the mandatory exception
• Current tax expense related to Pillar Two income taxes, disclosed separately from other income tax expense
• Qualitative and quantitative information about exposure to Pillar Two taxes in jurisdictions where legislation is enacted or substantively enacted but the entity has not yet computed its GloBE income

ASU 2023-09 has none of these. There is no mandatory exception for Pillar Two deferred taxes under US GAAP, no requirement to separately identify Pillar Two current tax expense, and no prescribed Pillar Two exposure disclosure. Standard ASC 740 accounting applies. As KPMG's income taxes comparison notes, unlike IAS 12, no specific disclosures are required for the top-up tax under US GAAP.

For a multinational filing both a 10-K and an IFRS annual report, this creates a structural asymmetry: the IFRS notes will carry a Pillar Two deferred tax exception disclosure and a separate Pillar Two current tax line that simply do not appear in the US GAAP filing.

What Is the 5% Threshold Under ASU 2023-09, and Does IAS 12 Have an Equivalent?

Under ASU 2023-09, the 5% threshold operates as a bright-line disaggregation trigger in two distinct contexts. First, for the rate reconciliation: any reconciling item within the eight mandatory categories that individually equals or exceeds 5% of pretax income multiplied by the applicable statutory rate must be separately disclosed. Second, for taxes paid: any individual jurisdiction where taxes paid (net of refunds) equal or exceed 5% of total taxes paid must be separately identified.

Deloitte's Heads-Up publication adds a nuance: qualitative disclosure is also required for items that affect the historical trend line of a category, even if they fall below the 5% threshold. The threshold is a floor, not a ceiling.

IAS 12 has no equivalent bright-line percentage. Materiality is assessed per IAS 1 and the Conceptual Framework, which means IFRS preparers may disclose more or fewer jurisdictions than their US GAAP counterparts, depending on their materiality assessment. In practice, KPMG observes that this difference in threshold mechanics means two companies with identical tax footprints could produce disclosures with different jurisdiction counts under the two frameworks.

The Dual-Reporter Problem: Can One Disclosure Package Serve Both?

For multinationals filing both a US GAAP 10-K and an IFRS annual report, the honest answer is: probably not without deliberate design.

The core tension is structural. ASU 2023-09's eight mandatory categories do not map cleanly onto IAS 12's principles-based reconciliation. A company could align its IFRS presentation to mirror the eight US GAAP categories, which would satisfy both standards simultaneously, but this is a deliberate choice that must be made at the policy level, not something that happens automatically. As Deloitte notes, a company may need to maintain two separate reconciliation frameworks unless it deliberately aligns its IFRS presentation to the US GAAP structure.

Three specific areas where alignment is hardest:

• Pillar Two: The IFRS filing must carry the mandatory exception disclosure and a separate Pillar Two current tax line. The US GAAP filing will not. These are not reconcilable into a single note.
• Format: The IFRS filing can present a dollar reconciliation or an effective-rate reconciliation. The US GAAP filing must present both. A company that presents only percentages in its IFRS filing will not automatically satisfy ASU 2023-09.
• GILTI/Subpart F: Under ASU 2023-09, income taxes on foreign earnings imposed by the jurisdiction of domicile, including US GILTI and Subpart F inclusions, must be included in the federal/national category, not the foreign category. IAS 12 has no equivalent rule, though a substance-over-form analysis would reach a similar result in most cases.

One practical approach: build the rate reconciliation around the eight ASU 2023-09 categories as the master framework, then layer in the IFRS-specific Pillar Two disclosures as a separate note section. This avoids maintaining two entirely separate reconciliation models while still satisfying both standards.

Where Do Income Taxes Paid Disclosures Appear?

This is an open implementation question under ASU 2023-09 that preparers must resolve before filing. As Deloitte's Heads-Up explicitly flags: "ASU 2023-09 does not specify whether such disclosures of income taxes paid should be included on the face of an entity's statement of cash flows." Entities have flexibility, but must apply their chosen policy consistently.

IAS 12 is clearer: the disaggregated taxes-paid disclosure belongs in the notes. Under IAS 7, income taxes paid are already disclosed on the face of the cash flow statement (or in the notes), so IFRS preparers have an established framework to work within.

For US GAAP preparers, the practical question is whether putting jurisdiction-level tax payment data on the face of the cash flow statement creates competitive sensitivity, particularly for companies with complex transfer pricing structures. Jurisdiction-level tax payment data can reveal effective tax rates by country in a way that was not previously visible. This is a board-level disclosure decision, not just a formatting one.

Systems and Data Infrastructure: The Operational Gap

The 5% taxes-paid threshold sounds mechanical, but executing it is not. EY's 2024 technical publication identifies the jurisdiction-level taxes-paid disaggregation as one of the most operationally challenging aspects of ASU 2023-09 implementation: many companies' ERP systems do not capture tax payments at the jurisdiction level in a format that is easily extractable for financial reporting purposes.

IAS 12's materiality-based approach gives IFRS preparers more flexibility to aggregate where the data is not readily available, provided the aggregation is defensible. ASU 2023-09's bright-line 5% threshold does not offer the same escape valve.

For calendar-year PBEs, this is not a future problem. Fiscal year 2025 is already underway, and the 2026 annual report filing season is the first mandatory test. Finance teams that have not yet mapped their ERP data to the eight rate reconciliation categories and jurisdiction-level payment tracking are behind.

SEC Comment Letter Risk in the 2026 Filing Season

The SEC has not issued specific implementation guidance on ASU 2023-09, but SEC staff have historically scrutinised income tax disclosures in comment letters, particularly rate reconciliation items and valuation allowances. With ASU 2023-09 now effective for calendar-year PBEs, comment letter activity on income tax disclosures is expected to increase materially in the 2026 filing season.

The highest-risk areas for comment letters are likely to be:

• Rate reconciliation items that appear in the eight mandatory categories but are not separately disclosed despite meeting the 5% threshold
• Jurisdiction-level taxes-paid disclosures that appear to aggregate jurisdictions that individually exceed the 5% threshold
• Qualitative disclosures about trend-line items that are vague or boilerplate
• GILTI/Subpart F amounts that are categorised as foreign rather than federal/national

For a broader view of SEC comment letter trends in 2026, see Finrep's SEC Comment Letter Trends: Non-GAAP Measures in 2026.

Transition: ASU 2023-09 vs IAS 12 Amendments

ASU 2023-09 defaults to prospective application, with retrospective permitted. This means calendar-year PBEs do not need to restate fiscal year 2024 disclosures. The FASB's project page notes that a cumulative-effect adjustment to opening retained earnings is required only to the extent the transition provisions demand it, which for most entities means no retained earnings adjustment for the rate reconciliation disclosures.

The IAS 12 Pillar Two amendments (May 2023) were effective immediately and mandatory. The broader IAS 12 disclosure amendments were effective for annual periods beginning on or after January 1, 2025. IFRS amendments typically default to retrospective application, creating a different transition posture than ASU 2023-09.

FAQ

Which disclosure requirement was eliminated with ASU 2023-09? ASU 2023-09 removes two previously required disclosures: the nature and estimation of future changes in unrecognised tax benefits, and the cumulative amount of temporary differences where a deferred tax liability is not recognised for subsidiaries and corporate joint ventures.

What is the effective date for ASU 2023-09 for public business entities? Annual periods beginning after December 15, 2024. For calendar-year companies, that is fiscal year 2025, with annual reports filed in early 2026. Non-public entities follow for annual periods beginning after December 15, 2025.

Does IAS 12 require the same eight rate reconciliation categories as ASU 2023-09? No. IAS 12 paragraph 81(c) is principles-based and requires a numerical reconciliation explaining significant differences, but prescribes no specific categories. The eight categories are unique to ASU 2023-09.

How does IAS 12 treat Pillar Two deferred taxes? IAS 12 introduced a temporary mandatory exception in May 2023: entities must not recognise or disclose deferred tax assets and liabilities arising from Pillar Two legislation, and cannot opt out. ASU 2023-09 has no equivalent exception.

Can a dual-reporter use one rate reconciliation for both US GAAP and IFRS? In principle, yes, if the company deliberately structures its IFRS reconciliation around the eight ASU 2023-09 categories. In practice, the Pillar Two disclosures, format requirements, and GILTI categorisation rule mean the two filings will differ in at least some respects regardless.

What is the main goal of ASU 2023-09? FASB's stated rationale was to address investor requests for more transparency about income tax information, specifically to help investors assess the effect of income taxes on financial performance for multinationals with complex cross-border structures. IAS 12's amendments share the same investor-driven rationale, but the IASB's output is less prescriptive.

The 2026 filing season is the first real test of ASU 2023-09 in practice. Finance teams at dual-reporter multinationals who have not yet mapped both frameworks against each other, resolved the Pillar Two asymmetry, and stress-tested their ERP data against the 5% threshold should treat that work as urgent, not optional.