It is when you are at the outer edge that there may be more than one correct answer.

Follow by Email

One path is to partner with trained and experienced preparers, utilize state-of-the-art technology and apply well-defined processes and procedures. Tax provisions prepared by experienced personnel with the proper procedures in place yield better results. Regarding the people process, tax provisions should be prepared by trained and qualified individuals familiar with the local jurisdictions.

The preparers could include in-house personnel and outside professionals. This is particularly important for foreign and state jurisdictions. What role do technology and processes and procedures play in satisfying requirements? Adequate technology is essential to a well-prepared tax provision.

Companies and their outside accountants demand it. There are several good software programs available to preparers. Many companies, however, use Excel-based programs very efficiently. Additionally, documentation supporting the calculations and technical conclusions reached should be clearly presented and understandable to the reader.

Choosing the correct answer that is most suitable for the situation is not manipulation. In general there is way more complexity the more variable the taxpayers economics are. Vacillating between profit and loss, valuation allowances coming and going, tax and accounting law changes, scheduling out reversals, UTP,… Now the fun begins….

Can an auditor do FAS calculation for its client or does that fall into conflict of interest? Thank you for your comment. I cannot give any legal advice. But an auditor audits books financial statements for its client. An auditor could point out any errors so the client could adjust the statements.

I am not an auditor but but it seems conflict of interest to me. Hope it was helpful. If it is a critical issue please consult an attorney or financial accounting standard board. Linking is very useful thing. This comment has been removed by a blog administrator.

Tax laws and financial accounting standards are not the same. An entity is also required to pay tax on its taxable income. Temporary differences ordinarily become taxable or deductible when the related asset is recovered or the related liability is settled. A deferred tax liability or asset represents the increase or decrease in taxes payable or refundable in future years as a result of temporary differences and carryforwards at the end of the current year.

A deferred tax liability is recognized for temporary differences that will result in taxable amounts in future years. For example, a temporary difference is created between the reported amount and the tax basis of an installment sale receivable if, for tax purposes, some or all of the gain on the installment sale will be included in the determination of taxable income in future years.

Because amounts received upon recovery of that receivable will be taxable, a deferred tax liability is recognized in the current year for the related taxes payable in future years. A deferred tax asset is recognized for temporary differences that will result in deductible amounts in future years and for carryforwards. For example, a temporary difference is created between the reported amount and the tax basis of a liability for estimated expenses if, for tax purposes, those estimated expenses are not deductible until a future year.

Settlement of that liability will result in tax deductions in future years, and a deferred tax asset is recognized in the current year for the reduction in taxes payable in future years. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized.

This Statement establishes procedures to a measure deferred tax liabilities and assets using a tax rate convention and b assess whether a valuation allowance should be established for deferred tax assets. Enacted tax laws and rates are considered in determining the applicable tax rate and in assessing the need for a valuation allowance.

All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a deferred tax asset. Judgment must be used in considering the relative impact of negative and positive evidence. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified.