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Lecture Taxation of individuals and business entities 2015 - Chapter 17: Accounting for income taxes

The purpose of this chapter is: Explain the objectives behind FASB ASC Topic 740, Accounting for Income Taxes, and the income tax provision process; calculate the current and deferred income tax expense or benefit components of a company’s income tax provision; recall what a valuation allowance represents and describe the process by which it is determined;. | Chapter 17 Accounting for Income Taxes 1 Learning objectives Explain the objectives behind FASB ASC Topic 740, Accounting for Income Taxes, and the income tax provision process Calculate the current and deferred income tax expense or benefit components of a company’s income tax provision Recall what a valuation allowance represents and describe the process by which it is determined 2 Learning objectives Explain how a company accounts for its uncertain income tax positions under ASC 740 (a codification of FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes) Recognize the different components of a company’s disclosure of its income tax accounts in the financial statements and footnotes and comprehend how a company computes and discloses the components of its “effective tax rate” 3 Objectives of “Accounting for Income Taxes” and Income Tax Provision Process The income tax provision includes Current year taxes payable or refundable Any changes to future income . | Chapter 17 Accounting for Income Taxes 1 Learning objectives Explain the objectives behind FASB ASC Topic 740, Accounting for Income Taxes, and the income tax provision process Calculate the current and deferred income tax expense or benefit components of a company’s income tax provision Recall what a valuation allowance represents and describe the process by which it is determined 2 Learning objectives Explain how a company accounts for its uncertain income tax positions under ASC 740 (a codification of FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes) Recognize the different components of a company’s disclosure of its income tax accounts in the financial statements and footnotes and comprehend how a company computes and discloses the components of its “effective tax rate” 3 Objectives of “Accounting for Income Taxes” and Income Tax Provision Process The income tax provision includes Current year taxes payable or refundable Any changes to future income taxes payable or refundable that result from differences in the timing of when an item is reported on the tax return compared to the financial statement A company records these future income taxes payable or refundable on its balance sheet as Deferred tax liability Deferred tax asset 4 Objectives of ASC 740 ASC 740 applies only to: Income taxes levied by the U.S. federal government U.S. state and local governments Non-U.S. (“foreign”) governments The FASB defines an income tax as a tax based on income, which excludes property taxes, excise taxes, sales taxes, and value-added taxes. Companies report non-income taxes as expenses in the computation of their net income before taxes Objectives of “Accounting for Income Taxes” and Income Tax Provision Process 5 Steps in determining the income tax provision Adjust pretax income for permanent differences Identify all temporary differences and carryforwards Calculate the current income tax expense or benefit Recognize deferred tax assets and .