Company: CWAN
Filing Date: 2025-02-26
Form Type: 10-K
Source: 0001628280-25-008169
Chunk: 84

Company: Clearwater Analytics Holdings, Inc.
Filing Date: 2025-02-26
Form: 10-K
Item: Item 8
Chunk 84
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We identified the evaluation of deferred tax assets recorded for exchange transactions as a critical audit matter. Complex auditor judgment, including specialized skills and knowledge, was required to evaluate the application of the income tax law and the calculation of tax basis within management’s model to determine the deferred tax assets generated in exchange transactions.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the deferred tax calculation. This included an internal control over the Company’s calculation of the deferred tax assets generated in exchange transactions. We involved tax professionals with specialized skills and knowledge, who assisted in:

•evaluating the Company’s application of income tax law related to the tax basis in the interest acquired from the Continuing Equity Owners in exchange transactions

•performing an independent calculation of the tax basis in the interest acquired from the Continuing Equity Owners in exchange transactions and comparing it to the Company’s calculation.

Evaluation of the realizability of deferred tax assets

As discussed in Notes 2 and 16 to the consolidated financial statements, at December 31, 2024, the Company had deferred tax assets of $625 million. These deferred tax assets consist primarily of $514 million of deductible temporary differences related to Investment in Partnership. The Company recognizes deferred tax assets to the extent it is more likely than not that the assets will be realized. The Company considered positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and recent results of operations.

We identified the evaluation of the realizability of certain deferred tax assets as a critical audit matter. The evaluation of the realizability of these deferred tax assets required subjective auditor judgment to assess the sustainability of the Company’s current taxable income over the periods in which those temporary differences become deductible because of the Company’s historical cumulative tax loss position. 

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the realizability of deferred tax assets, which included controls related to the Company's evaluation of the sustainability of current taxable income. We involved tax professionals with specialized skills and knowledge who assisted in evaluating the Company’s application of income tax law and the Company’s deferred tax asset scheduling process to determine whether it was more likely than not that certain deferred tax assets could be realized. We assessed whether current income levels are sustainable in future years by comparing to historical income levels and income margins of peer entities. We also assessed changes in the composition of the