Deferred Tax

In: Business and Management

Submitted By Vermo
Words 15534
Pages 63
Rigorous or Not?: A Case of Auditor Judgment for Deferred Tax Issues Leader’s Guide

Leader’s Guide Rigorous or Not?: A Case of Auditor Judgment for Deferred Tax Issues
Jan Taylor Morris, PhD, CPA Time: 3 hour unit of study Module Objectives
1. Help students understand the importance of exercising high quality professional judgment; 2. Introduce students to the KPMG Professional Judgment Framework; 3. Provide students with an opportunity to apply the framework; and 4. Provide students with the opportunity to begin developing an appropriate mindset for making good judgments.

Module Learning Objectives
Critical analysis of case issues and application of KPMG Professional Judgment Framework allow students to increase their: 1. Problem solving and decision making skills in an ambiguous learning environment;

2. Strategic / critical thinking as they consider the relevant issues of the case and make subjective decisions; 3. Ability to identify relevant risks associated with improper judgments; and 4. Understanding of ASC 740 and accounting for income taxes and how judgment impacts financial reporting.

Module Components
• Class Structure: 3 hour unit of study • PowerPoint Lecture • Case Assignment • Workpaper • Five Videos • Summary: Elevating Professional Judgment in Auditing and Accounting: The KPMG Professional Judgment Framework (available at: http://www.kpmguniversityconnection.com/ProfessionalJudgment/CurriculumSupport/Monographs/Professional-Judgment-Summary.aspx
Acknowledgements: The author gratefully acknowledges the advice offered by Daryl Taylor, KPMG Houston, and Kathryn Radfar, in developing this case and suggested solutions. KPMG University Connection www.KPMGUniversityConnection.com
© 2013 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member , firms affiliated with KPMG…...

Similar Documents

Deferred Tax

...Kudler Fine Foods is a growing business in an evolving world. Modern technology advancements in accounting information systems will aid Kudler in the company’s growth and will eventually reduce accounting costs and the time it takes to complete accounting processes. We recommend that Kudler switch from paper accounting to an automated system, such as POS system to enhance the payroll, accounts payable, accounts receivable, and inventory processes. Accounting Information Systems Kudler Fine Foods is a company that was started with an idea and has now expanded their chain into three additional stores within a couple of years. They are in need of software suitable for the specific needs of the organization. Analyze the nature of the software that Kudler would benefit most from is very important. A collective discussion will be on the accounting information system (AIS) in regards to the internal controls of Kudler’s Fine Foods and what the company will need in order to run reports and statements. Rational and Analysis of Recommendation If a company takes the time to develop their accounting system it will provide the organization with a long term benefit. It allows a company to meet their financial obligations with accurate reporting. Kudler Fine Foods benefit best if they developing a customized system. Although the development of a customize system could become significantly costly and very time consuming with implementation the advantage is that the system is designed......

Words: 685 - Pages: 3

Tax Regulation

...function and survive. It is this constant necessity for capital that gives way to much of the debate within tax accounting. In the United States, citizens and taxable businesses have an obligation to pay taxes to the government’s tax collecting body, the Internal Revenue Service. The IRS functions as the implementing body for the U.S. tax laws found in the Internal Revenue Code. While the IRC serves as the main source of regulation for taxation, actual implementation is a very subjective issue and left open to multiple interpretations. Within the IRC, taxpayers are entitled to numerous deductions that, in essence, reduce their tax liability. The ability to reduce taxes creates an incentive to analyze the Code and utilize every method possible that will help save money. This practice, in turn, opens the door for tax avoidance and aggressive tax accounting. One of the most aggressive tax issues that the IRS faces is the usage of tax shelters. A tax shelter is an investment that utilizes loopholes in order to avoid the payment of taxes. Many tax shelters that have been developed are considered completely legal and follow the IRC properly, serving some major economic purpose. In the late twentieth century, it became common practice for big accounting firms to develop and market different tax shelters in order to reduce their client’s tax liabilities. Some of the tax shelters being developed, though, began to abuse the loopholes in the IRC and were considered too aggressive....

Words: 1568 - Pages: 7

Case Study of “Rigorous or Not?: a Case of Auditor Judgment for Deferred Tax Issues”

...Case study of “Rigorous or Not?: A Case of Auditor Judgment for Deferred Tax Issues” Judgment Framework and Professional Judgment Discuss the importance of “judgment framing.” “Judgment framing” occurs early in the judgment process. The definition of framing follows: Frames are mental structures that we use, usually subconsciously, to simplify, organize, and guide our understanding of a situation. They shape our perspectives and determine the information that we will see as relevant or irrelevant, important or unimportant. Frames are a necessary aspect of judgment, but it is important to realize that our judgment frames provide only one particular perspective. The importance is that judgment framing question management’s perspective appropriately by viewing other frames and it is a foundation to professional skepticism. How do perceptual biases relate to judgment biases? Our eyes and related perceptual skills ordinarily are quite good at perceiving and helping us to accurately judge shape similarity. However, optical illusions can predictably and systematically fool our eyes. The judgment biases are similar to the perceptual ones, like there are times when our intuitive judgment falls prey to systematic traps and biases. What are the five steps in the judgment process? a. Clarify Issues & Objectives: To get at issues, ask “what is the problem to be solved?” To get at objectives ask “what is wanted or needed?” Ask “what” and “why” questions. b.......

Words: 2140 - Pages: 9

Tax Module

...for the following paragraphs: 7,240 – 7,260.20 7,306 7,370 7,380 7,500 7,600 7,720 8,000 – 8,300 Change in use of a principal residence Special relief for tax-deferred elections made prior to March 4, 2010 Capital gains deferral Certain shares deemed to be capital property Death of a taxpayer Leaving and entering Canada Allowable business investment losses All of Chapter 8 Income for the year = (a) + (b) – (c) – (d) (a) Income from: + + + + Plus: (b) Net TCG for the year (cannot be negative) Taxable net gain from listed personal property (cannot be negative) Less: (c) Other deductions (except if deducted in (a) above) Less: (d) Losses for the year from an office, employment, business or property or ABIL Income for the year cannot be less than zero office, employment business property other income such other deductions as are deducted against this income. Net TCG Revenue Expenses Income Division C Deductions Taxable income Proceeds of disposition (actual or deemed) Cost of disposition Cannot be negative for the year; apply inclusion rate of 50%; can be deferred (s.85, replacement property) CGD, Net CL carryover Taxable Net Gain from LPP – the only place in the Act where losses of other years are deducted in the calculation of income as opposed to taxable income Module 8 – Capital Gains/Losses Personal – Division C and Tax Payable Employment Business AFM 362 – Taxation 1 2 Property Net TCG Dividends - Indiv Cdn Eligible Inelig For'n OI/OD TOTAL Cdn For'n Cdn For'n......

Words: 1792 - Pages: 8

Income Tax

...Accounting for Income Taxes I. Overview – Accounting for income taxes involves both intraperiod and interperiod tax allocation. Intraperiod allocation matches a portion of the provision for income tax to the applicable components of net income and retained earnings. Income for federal tax purposes and financial accounting income frequently differ. Income for federal tax purposes is computed in accordance with the prevailing tax laws, whereas financial accounting income is determined in accordance with GAAP. Therefore, a company’s income tax expense and income taxes payable may differ. The incongruity is caused by temporary differences in taxable and/or deductible amounts and requires interperiod tax allocation. II. Intraperiod Tax Allocation – Intraperiod Tax Allocation involves apportioning the total tax provision for financial accounting purposes in a period between the income or loss from: a. Income from continuing operations b. Discontinued operations c. Extraordinary items d. Cumulative effect of an accounting change e. Other comprehensive income i. Pension Adjustment ii. Unrealized gain/loss on available for sale security iii. Foreign translation adjustment f. Components of stockholders’ equity iv. Retained earnings for prior period adjustments and v. Items of accumulated (other) comprehensive income g. General Rule – Any amount not allocated to continuing......

Words: 2526 - Pages: 11

Corporate Tax

...Chapter 9 Review: * Contributions to Partnerships §721 * No gain or loss on the exchange * Tax basis in transferred property is carryover basis * Debt Allocation Rules §752 * Liabilities considered contribution of money of the partnership * Decrease in liabilities=distribution §721 does not apply when an incoming partner contributes personal services to a partnership in exchange for ownership interest. Capital interest: ordinary compensation to extent of interest, becomes partner’s initial outside basis (ex. substantial risk of forfeiture) Profits/Losses interest: does not recognize current income because there is no initial liquidation value; initial basis is zero, recognize income to extent of future profits + Original basis of contribution + Additional contributions + Increase in share of liabilities + Distributive share of taxable K income (inc. capital gains) + Distributive share of tax-exempt K income – Distributions of cash and property – Decrease in share of liabilities – Distributive share of nondeductible expenses – Distributive share of losses = Partner’s outside basis for interest §83 election: taxed now instead of when restriction lapses, good if stock price increases Computation of Partnership Taxable Income * Same as individual; Form 1065—ordinary business income or loss * However, must classify income in two groups * Separately stated items: capital gains and losses,......

Words: 2229 - Pages: 9

Deferred Tax Asset

...1.0 Introduction This assignment focuses on the effects of Deferred Tax Assets (DTA) on entities and how entities make justifications on DTA arise or in this case, the Product Warranty, and the recognition criteria for DTA. A Deferred Tax Asset represents the increase or decrease in taxes payable or refundable in future years as a result of ‘Temporary Differences’ and Net Operating Loss or Tax Credit carry-forwards that exist at the reporting date (Nelson, Spiceland and Sepe, 2011). This is similar to the definition of DTA stated in the Accounting Standards AASB 112 Paragraph 5. Temporary Differences arise when the events are recognized in one period in a bank’s book but are recognized in a different period on its tax return. To find Deferred Tax Assets (DTA), first find Tax Base (TB) by taking Carrying Amount (CA) less the Future Taxable Amount and adds Future Deductible Amount. Having TB larger than CA, there will be Deductible Temporary Difference (DTD), while having TB lesser than CA gives rise to Taxable Temporary Difference (TTD). By multiplying the DTD with the Tax Rate, DTA will be calculated. 2.0 Discussion 2.1 Provision for Product Warranty A Product Warranty is generally a guarantee from one party to another that a certain conditions or facts are true or will happen. A product warranty is a provision because when a product warranty is issued, there is a legal obligation and settlement is expected to result in an outflow of resources (McNicholas and...

Words: 1212 - Pages: 5

Deferred Tax Assets

...the deferred tax asset as the amount of income taxes recoverable in future periods in respect of deductible temporary differences, the carryforward of unused tax losses and the carryforward of unused tax credits. A deductible temporary difference occurs as a result of a difference between the carrying amount of an asset or liability in the statement of the financial position and its tax base (Locke, C., 2004), in which the amount is deductible in determining taxable profit (tax loss) of future periods when the carrying amount is recovered or settled. In Surewin Ltd’s case, in terms of the accounting treatment using the accrual basis, the company recognises a product warranty expense in profit and loss for the year end from its provisions for product warranty. Whereas under the tax treatment which is cash based, the company is allowed to claim tax deductions only after it has paid out the warranty costs. There is a timing difference between when the warranty expense is recorded in the accounting books of the company (immediately) and when the liability is claimed and paid for in cash (in the future). Therefore, the difference in the carrying amount of the liabilities for product warranty in the balance sheet of the company and its tax base results in a future deductible amount. This amount is known as a deductible temporary difference, in which results in a deferred tax asset at a 30% tax rate. Part (b): Paragraph 24 outlines the recognition criteria for deferred tax......

Words: 1026 - Pages: 5

Tax Tutorial

...of Financial Position | Biru BhdRM’000 | Merah BhdRM’000 | Share capital @ RM1 each | 20,000 | 10,000 | Retained earnings | 8,760 | 8,480 | | 28,760 | 18,480 | | | | Fixed assets at net book value | 18,580 | 16,970 | Investment in Merah Bhd, at cost | 10,000 | – | Inventories | 4,300 | 2,500 | Account receivables | 3,575 | 1,400 | Bank | 140 | 1,630 | Account payables | (3,135) | (2,420) | Deferred taxation | (2,200) | (1,600) | Proposed dividend | (2,500) | – | | 28,760 | 18,480 | Additional information: 1. During the year ended 31 December 2014, Merah Bhd sold inventories to Biru Bhd for invoices totaling RM2,000,000. Of this amount, RM500,000 remained in the ending inventories of the Biru Bhd at year end. The corresponding ending inventories amount in the prior year was RM800,000. The profit margin was 20% on selling price. 2. Tax effects on unrealised profit or loss on inter-company transactions should be ignored. 3. Assume no changes in the share capital for both companies during this period and an income tax rate of 30%. REQUIRED: (a) Prepare the consolidation journal entries for Biru Bhd. (b) Prepare the Consolidated Statement of Comprehensive Income for the year ended 31 December 2014. (c) Prepare the Consolidated Statement of Changes in Equity (partial) for the year ended 31 December 2014. (d) Prepare the Consolidated Statement of Financial Position as at 31 December 2014. QUESTION 2 On 1......

Words: 2087 - Pages: 9

Tax Planning

...It’s the Season for Tax Planning Clean Up It is autumn and time for a tax planning review. You may have been distracted by a struggling global economy affecting all that you do, but Uncle Sam still wants his share of your personal pocketbook. Taxes must be taken into account on every financial decision. There are many financial issues we cannot control, but there are some we can. You can control the timing of certain transactions relative to income tax planning. It is particularly important before yearend to pay attention to what will be reported on your tax returns. As always, consult with your tax advisor on all tax matters. Here are some tips to consider. * First, review your financial picture. How have things changed? Is cash flow increasing, or decreasing? Do you need to adjust your withholding or estimated tax payments? * Can you accelerate or delay income? * What deductions should be paid 2011, or deferred to 2012. For example, do your deductions exceed the IRS thresholds; medical bills, miscellaneous investment charity donations, property tax, etc. * Are you taking full advantage of retirement plans? If you are over age 50, or are turning age 50 this year, you can make a catch up contribution. For age 50 or older, add $6,000 to your plan. There are some unique aspects of tax planning in 2011. Some of them actually continued from 2010. There is no phase-out of itemized deductions, which this year continues to be a benefit for......

Words: 854 - Pages: 4

Methodology Deferred Taxes

...Methodology used to determine deferred taxes. Generally Accepted Accounting Standards is used for preparing financial reports for creditors and investors. However to file income tax returns corporations must use the guidelines established by the Internal Revenue Service. The differences between GAAP and tax reporting regulations could cause tax expenses reported on the financial statements to be different from the amount of taxes payable to the IRS. Understanding the differences, first understand the difference between pretax financial income and taxable income. Pretax financial income is the amount calculated for financial reporting purposes. Taxable income is the tax accounting term used to compute income taxes payable. The difference between these two amounts is a temporary difference. The temporary difference is the difference between the tax basis of an asset or liability and its reported amount in the financial statements, which will result in taxable amounts or deductible amounts in the future (Kieso et al, 2007). Once the company has established the temporary difference, the amount is shown on the books as a deferred tax liability or a deferred tax asset. A taxable temporary difference is a deferred tax liability that will increase taxes payable in futures years whereas a deductible temporary difference is a deferred tax asset that will be a refundable amount in taxes payable for future years. Using deferred tax methods can be useful, an obligation can be......

Words: 506 - Pages: 3

Tax Accounting

...year shareholders of the S corporation would defer the income earned by the S corporation from February 1 until December 31 each year until the following calendar year. 3. The ideal tax year would end on January 31, and the salary would be paid each January. Thus, in 20X7 the corporation could pay $25,000 salary, which would eliminate the corporation’s taxable income. The medical doctor would report salary of $25,000 for 20X7. For the fiscal year ending January 31, 20X8, the corporation would pay $300,000 salary in January 20X8, and that would be the doctor’s salary income for the calendar year 20X8. If the corporation used the calendar year to report income and paid the salary in December, the doctor would have $300,000 salary income in 20X7 and in 20X8. Thus, as compared to using a calendar year, the doctor will always have $275,000 of deferred income by using a fiscal year. 4. Pale Motel, Inc., an S corporation, will be required to switch to a calendar tax year effective May 1, 20X7, unless it can demonstrate a business purpose for the fiscal year which will satisfy the IRS. This will result in an annualization of income calculation. 5. The cash basis taxpayer can deduct the premiums of $24,000 in 20X7 because the prepayment does not extend beyond the end of the succeeding tax year (i.e., one-year rule for prepaid expenses). 6. a. Fixed assets are accounted for in the same manner by both cash and accrual basis taxpayers. They are capitalized and......

Words: 1186 - Pages: 5

Income Tax

... | |October 2000 |Limited Revisions to IAS 12 | |1 January 2001 |Effective date of the October 2000 revisions | |March 2009 |Exposure Draft of a Revised IAS 12 | |20 December 2010 |IAS 12 amended in Deferred Tax: Recovery of Underlying Assets. Click for More Information | |1 January 2012 |Effective date of the December 2010 revisions | |RELATED INTERPRETATIONS | |SIC 21 Income Taxes - Recovery of Revalued Non-Depreciable Assets | |SIC 25 Income Taxes - Changes in the Tax Status of an Enterprise or its Shareholders | |Issues Relating to This Standard that IFRIC Did Not Add to Its Agenda | |AMENDMENTS UNDER CONSIDERATION BY IASB | |Convergence Topics: Income Taxes ......

Words: 1692 - Pages: 7

Why Do Some Individuals Consider Tax Deferred to Be Taxes Saved? Is Their Reasoning Logical?

...have very high standard….soo….plz make spare few hours for this and post me the answers na aku…….. These are the questions…….? Question 1 Why do some individuals consider tax deferred to be taxes saved? Is their reasoning logical? (4 marks) Question 2 Mr. Karma is an employee of XYZ ltd. He draws salary @Nu.20,000 p.m during the year 2010-2011. He occupies residential house at Thimphu. Its rent is Nu.6000 p.m. He is offered three alternatives by the employer: 1) The company pays the rent direct to the landlord, the tenancy being between the company and the landlord. 2) The company pays house rent allowance to karma @Nu.5750 p.m and karma pays rent of Nu.6000 p.m to the landlord-the tenancy being between karma and the landlord. 3) The company neither offers karma the house accommodation, nor the rent allowance. Karma pays rent of Nu.6000 p.m for the accommodation occupied by him. He requests you to advise him as to which option would minimize his tax liabilities and maximize the cash inflow after tax. (5 marks) Question 3 Governments around the world are becoming increasingly sensitive to the loss of revenue resulting from multinational companies moving into other jurisdictions, most particularly tax havens, to lower their overall rates of tax. What are some of the measures that can be adopted to prevent such revenue losses? (5 marks) Question 4 Maxisoft is a private company incorporated, managed and controlled in......

Words: 492 - Pages: 2

Tax Accounting

...13 chapter TAX ACCOUNTING OBJECTIVES After completing Chapter 13, you should be able to: 1. List what are permissible tax years. 2. Explain the requirements for changing a tax year. 3. Identify the available accounting methods. 4. Understand the rules for accounting method changes. 5. Account for the capitalization of inventory costs. 6. Describe long-term contract reporting. 7. Defi ne the installment method of accounting. 13–2 CCH FEDERAL TAXATION—COMPREHENSIVE TOPICS OVERVIEW The fi rst 12 chapters are presented primarily from the individual taxpayer’s point of view (including self-employed taxpayers). This chapter provides a general discussion of the previous material as it applies to other entities and provides a discussion of accounting periods and accounting methods as they apply to all entities. Discussions of specifi c provisions as they apply to other entities (e.g., corporations, partnerships, etc.) are contained in subsequent chapters. The term “fi nancial accounting” refers to the reporting of the fi nancial data of an enterprise through fi nancial statements prepared in accordance with generally accepted accounting principles. Income tax accounting, hereafter referred to as “tax accounting,” is concerned with the reporting of fi nancial data to satisfy the requirements of the Internal Revenue Code, the Regulations which interpret the Code, rulings by the IRS which further interpret the Code and Regulations, and the decisions of the courts...

Words: 30831 - Pages: 124

Flashpoint eVOLV 200 R2 TTL Pocket Flash with Barndoor Kit (Godox AD200) #EV-200 | Westworld - Season 1 COMPLETE | Telefoni