At the close of every quarter, companies recognize income tax expense or benefit in their respective quarterly financial statements in accordance with interim reporting guidance under FASB Accounting Standards Codification 740, Income Taxes (ASC 740). This particular guidance employs a methodology that distinguishes between elements recognized through the use of an estimated annual effective tax rate (AETR) and specific events that are discretely recognized as they occur. While these concepts seem straightforward, when applied, this accounting model can present formidable challenges to many companies and can sometimes produce unexpected results.
This edition of Tax accounting insights highlights the “basics” as well as key areas of focus when accounting for income taxes during interim periods.
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