ASC 740 Part 1: Practical Application for Accounting for Income Taxes Based on Income

Author: Lynn Fountain

ASC 740 mandates a balance sheet approach to accounting for income taxes. Companies recognize and measure deferred tax liabilities and deferred tax assets plus any required tax valuation allowances, then use the changes in these accounts to calculate the corporate deferred income tax provision. While the scope of ASC 740 appears self-explanatory, the unique characteristics of different tax regimes across the United States and the world can make it difficult to determine whether a particular tax is based on income. Public and private companies must submit quarterly and annual income tax provisions. These are some of the most scrutinized processes for tax departments. They also have the added complication of a short time frame for execution which creates the opportunity for inaccuracy risk and control failures. This course will take the building block concepts learned in the ASC 740 Introduction Course and attach practical applications to the concepts. We use multiple examples and scenarios to explain the concepts. Even at a basic level, ASC 740 (previously FAS 109), Accounting for Income Taxes is a challenging pronouncement to master and apply in terms of preparing the corporate tax provision. ASC 740 addresses financial accounting and reporting for the effects of income taxes - federal, foreign, state and local - that result from an enterprise's activities during the current and preceding years. As a result of these efforts, companies are able to recognize current year taxes due or refundable and manage expected future tax consequences of deferred assets and liabilities. Note: On March 15, 2023, FASB released proposed ASU "Income Taxes (Topic 740) – Improvements to Income Tax Disclosures," to make targeted improvements to income tax disclosures. The proposed ASU would require entities to provide more disaggregated information about cash taxes paid (for example, by jurisdiction). Specific categories would be prescribed that entities would have to include within the rate reconciliation disclosure requirement. We will review the most important aspects of this proposal at the end of this segment one related to practical applications of ASC 740.

Publication Date: October 2023

Designed For
Business owners and operational professionals, Accountants and Finance professionals and Internal auditors, and Tax and Legal professionals.

Topics Covered

• Importance of ASC 740 and Principle and Scope of ASC 740
• Purpose of Deferred Taxes
• Temporary Difference
• Permanent Differences
• Uncertainty in Income Taxes
• Computing DTA and DTL
• Amendments
• Jan 2023 Proposed Amendments
• General Examples of Temporary Differences

Learning Objectives

• Identify the importance of ASC 740
• Identify the scope of ASC 740 and types of taxes included
• Identify how to book temporary vs. permanent differences
• Identify how to apply the concept of deferred tax assets and deferred tax liabilities to scenarios
• Identify and apply uncertainty for income tax
• Recognize outlining concepts that are embedded in tax based on income
• Identify how to apply recognition and measurement issues to examples
• Identify ASC 740 proposed disclosure amendments

Level
Basic

Instructional Method
Self-Study

NASBA Field of Study
Accounting (2 hours)

Program Prerequisites
None

Advance Preparation
None