Accounting for Income Taxes (Issued 2/92).
FAS (as issued) By clicking on the ACCEPT button, you confirm that you have read and understand the FASB Website Terms and Conditions. Do you accept the terms? Accounting for Income Taxes (Issued 2/92) Summary This Statement establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise's activities during the current and preceding years.
The objectives of accounting for income taxes are to recognize a the amount of taxes payable or refundable for the current year and b deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an enterprise's financial statements or tax returns. The following basic principles are applied in accounting for income taxes at the date of the financial statements:.
The tax consequences of most events recognized in the financial statements for a year are included in determining income taxes currently payable. However, tax laws often differ from the recognition and measurement requirements of financial accounting standards, and differences can arise between a the amount of taxable income and pretax financial income for a year and b the tax bases of assets or liabilities and their reported amounts in financial statements.
Timing differences create differences sometimes accumulating over more than one year between the tax basis of an asset or liability and its reported amount in financial statements. Other events such as business combinations may also create differences between the tax basis of an asset or liability and its reported amount in financial statements.
All such differences collectively are referred to as temporary differences in this Statement. 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.
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.
The processes and procedures applied should be used with a high degree of integrity. A deferred tax liability or asset is measured using the enacted tax rate. FAS is not a simple concept and requires prudent estimates by the accountants. When and how to recognize deferred taxes on the financial statements?
What are the effects of deferred tax assets and deferred tax liabilities on the financial statements? What is the relationship between deferred tax assets and deferred tax liabilities and the tax rate?
How revaluation of deferred tax assets and liabilities affect accounting income? How to utilize a deferred tax asset resulting from net operating loss? When a valuation allowance is required? Kindle Edition is available at: Posted by Saria Nadeem at 9: Accountax July 28, at 8: Saria Nadeem July 28, at 9: Calvin Brock August 3, at 4: Saria Nadeem August 12, at 7: Tomalika Hauladar December 24, at 7:
Should the tax preparation process be done independently by internal personnel and advisers? Summary This Statement establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise's activities during the current and preceding years.
One path is to partner with trained and experienced preparers, utilize state-of-the-art technology and apply well-defined processes and procedures.