hard · CFA Level I fsa
Westfork Bancorp has a deferred tax asset (DTA) of $20 million related to loan loss provisions. Westfork reports under US GAAP. Due to a deteriorating economic outlook, management now believes it is 'more likely than not' that 5 million of the DTA will not be realized.
How should Westfork account for this change?
- Increase a valuation allowance by $5 million, decreasing net income.
- Disclose the potential non-realization in the notes without changing the balance sheet.
- Directly write down the DTA by 5 million through OCI.
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