The purpose of this posting is to clarify the reference in Deferred Taxes 1.0 published on December 14, 2014 to the financial statements of Apple, Inc. ("Apple") as of and for the year ended September 27, 2014 included in its Form 10-K filed October 27, 2014 with respect to its reported "Net deferred tax liabilities".
In that posting, it was noted that Apple reported "Net deferred tax liabilities" on the Balance Sheet as of September 27, 2014 of $15,941 million computed by taking $20,259 million of "Deferred tax liabilities" (netted by Balance Sheet classification, by tax-paying component of the entity, by tax jurisdiction) included in "Other non-current liabilities" and subtracting $4,318 million of "Deferred tax assets, current (netted by Balance Sheet classification, by tax-paying component of the entity, by tax jurisdiction) separately reported on the Balance Sheet.
Additionally, it was noted in the posting that Apple reported, in financial statement Note 5 – Income Taxes, "Net deferred tax liabilities" of $15,120 million that consisted of $21,664 million of "Total deferred tax liabilities" less $6,544 million of "Total deferred tax assets, net of valuation allowance".
Conceptually, in a set of financial statements prepared in accordance with generally accepted accounting principles in the U.S. ("US GAAP"), the "Net deferred tax position" should be a single value whether it is computed as:
| Balance Sheet - Classified | Balance Sheet - Non-classified | Footnote Disclosure | ||||
| Deferred tax assets, current | Deferred income tax assets | Total of all deferred tax assets | ||||
| + | - | - | ||||
| Deferred tax assets, non-current | Deferred income tax liabilities | Total valuation allowance recognized for deferred tax assets | ||||
| - | = | = | ||||
| Deferred tax liabilities, current | Total deferred tax assets, net of valuation allowance | |||||
| - | - | |||||
| Deferred tax liabilities, non-current | Total deferred tax liabilities | |||||
| = | = | |||||
| Net deferred tax position | Net deferred tax position | Net deferred tax position | ||||
In Apple's case, the "Net deferred tax position" per the Balance Sheet was $821 million greater than the "Net deferred tax position" per financial statement Note 5 – Income Taxes.
An inquiry was submitted to Apple who was kind enough to confirm that the $821 million represents "Deferred tax assets, non-current" included in "Other [non-current] assets" on its Balance Sheet as of September 27, 2014.
In conformance with Regulation S-X §210.5-02(17), since the $821 million is equal to or less than 5% of Total assets as of September 27, 2014 ($821 million ÷ $231,839 million = 0.35%), Apple is not required to separately report the $821 million of "Deferred tax assets, non-current" on the Balance Sheet or in a note thereto. By inference, Apple's management did not consider reporting "Deferred tax assets, non-current" of $821 million meaningful for consumers of its published financial data.
In contrast, management of Johnson Controls, Inc. disclosed in footnote 18. INCOME TAXES all components of "Deferred tax" included in its Balance Sheet as of September 30, 2014, by inference, finding such information meaningful for consumers of its published financial data, even though it was only required to report separately "Deferred tax assets, non-current" included in "Other noncurrent assets" on its Balance Sheet.
Both companies properly reported their financial statements and complied with filing requirements, which highlights a complication with financial statement data prepared in accordance with US GAAP and filed in accordance with SEC Rules and Regulations, whether such data is in electronic or printed form.
Additionally, it validates that (1) the difference between deferred tax liabilities and deferred tax assets, net of valuation allowance must always equal the "Net deferred tax position" included in the Balance Sheet and (2) the "Net deferred tax position" can never be "before jurisdictional netting", as indicated by the "Deferred Tax Liabilities, Net" and "Deferred Tax Assets, Net" financial tags modeled in the 2015 draft of the US GAAP taxonomy.