Guide to Accounting for Income Taxes - 2013 third edition (November 2016)

Accounting guide Nov 15, 2016

The accounting for income taxes (ASC 740) continues to pose many challenges for preparers, users, and auditors. This guide is intended to clarify the fundamental requirements involved in the accounting for income taxes.

Note: We have updated our accounting and financial reporting guide for Income Tax – 2013 second edition to reflect content that was updated and moved to the accounting and financial reporting guide for Financial Statement Presentation - 2016 edition.

Already complex, accounting for income taxes (ASC 740) will become even more so as a result of new and forthcoming guidance in the U.S. The accounting model for income taxes has been around for some time—a fact that suggests companies have had sufficient time to fully acclimate themselves to the standard’s provisions. In the intervening years, however, the overall business environment has grown decidedly more complex. So too has accounting under U.S. generally accepted accounting principles (GAAP). The way that governments (local, federal and foreign) levy taxes is also more complex now. These factors have made the interpretation of the accounting model for income taxes particularly challenging.

Where there is complexity, there is the greater likelihood of complications. In recent years, controls around the accounting for income taxes have been a critical source of material weakness in companies’ internal controls over financial reporting. Accounting for income taxes has also been a primary reason for restating financial statements.

Further complications may arise as U.S. GAAP begins to converge with International Financial Reporting Standards (IFRS). While the Securities and Exchange Commission (SEC) ponders whether it will allow U.S. companies to file financial statements prepared under IFRS, many practitioners will want to become familiar with the similarities and differences between the two frameworks.

The 2013 second edition of our Income Taxes Guide is intended to clarify the fundamental requirements involved in the accounting for income taxes (ASC 740) and to highlight key points that should be considered before and after transactions are undertaken.


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    Guide to Accounting for Income Taxes - 2013 third edition (November 2016)
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Pat Durbin
US Standard Setting Leader, National Professional Services Group
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