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#ASC740 #SALT #Taxes
ASC 740 does not specifically define “cumulative losses in recent years.” However, in discussing cumulative losses, the FASB did note, in Statement 109.100 (non-authoritative), that the Board considered losses in the context of a three-year period. Although interpretations might vary, we believe a company is in a cumulative loss position for financial reporting purposes when it has a cumulative loss for the latest three years (see Basis for Conclusions of Statement 109 [non-authoritative]). This means that a company with a loss in the current year in excess of income realized in its previous two years would be in a cumulative loss position.
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Portfolio 5000-9th: Accounting for Income Taxes—FASB ASC 740, VI. Valuation Allowance
idance in ASC 740-10-30-21 that forming a conclusion that a valuation allowance is not needed is difficult when there is significant negative evidence such as cumulative losses in recent years. <span>ASC 740 does not specifically define “cumulative losses in recent years.” However, in discussing cumulative losses, the FASB did note, in Statement 109.100 (non-authoritative), that the Board considered losses in the context of a three-year period. Although interpretations might vary, we believe a company is in a cumulative loss position for financial reporting purposes when it has a cumulative loss for the latest three years (see Basis for Conclusions of Statement 109 [non-authoritative]). This means that a company with a loss in the current year in excess of income realized in its previous two years would be in a cumulative loss position. We believe that, to measure cumulative losses for this purpose, a company should use book income and include pretax results from all sources except for the cumulative effect of changes


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