Discussion:Deferred taxes & tax accruals
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Frostyinmo (talk|edits) said: | 25 April 2006 |
| I am auditing a very profitable C Corp with a fiscal year end. They are making the switch to an S Corp this year. Should I still be concerned with deferred taxes and tax accruals on the final fiscal year end audited books, knowing that they are not going to be accounted for in the future?
Furthermore, if I should book these accruals, how do I get them off the books when the company becomes an S Corp? Am I going to debit/credit an expense account or take the adjustment directly to Retained Earnings or even AAA? Thanks! | |
| 25 April 2006 | |
| I think you're in the wrong forum looking for answers to GAAP questions here. I have not done GAAP financial statements in a long while, so for the deferred tax question you need to look at the FASB's. You may also want to call the AICPA Technical Hotline (I don't know if this number is still current since it has been in my Rolodex for years, but I have 800-832-4272 Dept 2) But here is my take, obviously given without any research.
Yes, the current and deferred taxes are still relevant for the y/e while the corp is still a C corp. You will need to add a subsequent event footnote disclosure pertaining to the S election which occurred after y/e. (I suppose it is possible that the election was done prior to y/e, but most likely not). The current tax liability should go away once the taxes are paid for the final year as a C corp. I'm guessing (again without opening a FASB to back up my guess) that the deferred tax liability in existance on the balance sheet date will be credited to deferred tax expense in the first year the S election becomes effective. Hope that helps. (Worth what you paid for it :) | |
| 26 April 2006 | |
| Saw this very subject discussed on another forum
answer went as follows: (but don't ask me .. I am a tax accountant.. not an financial auditor) they concluded it though the income statement: ____________________________ FAS 109 is effective for fiscal years beginning after 12/15/1992. See Par. 45 a. - Current expense or benefit. FAS 109, Par. 112 - "A change in tax law or rate or a change in the tax status of an enterprise is an event that has economic consequrences for an enteprise in the year that the change occurs, that is, in the year that a change in tax law or rate is enacted or a change in status approved." _____________________________________________________ | |
| 26 April 2006 | |
| Isn't there this big convergence project to determine what 109 actually means? My opinion in this matter is most spectacularly worthless, but assuming that the deferred tax liability represents the difference between actual taxes paid and taxes computed as payable on GAAP income there has to be a charge to retained earnings and it makes a lot more sense to reflect that charge as at 12/31/05. | |
| 26 April 2006 | |
| You may need to true-up a lot of temporary accounts on the last FS of the C corp. it may be an exercise. Think about all the tax consequences of an S Election. | |
| 26 April 2006 | |
| Before I answer the question, I need to address a seemingly major issue:
How are you "auditing" the books of a company as an EA? Issuing an opinion on audited F/Ss is for CPAs only. Or do you mean you are performing the tax provision under the guidance of a CPA who is issuing the opinion? There is a big difference between the two. I cannot think of any state that allows non-CPAs to issue opinions on audited F/Ss. Doing so is "holding oneself out as a CPA" and is against the law. | |
| 1 May 2006 | |
| It would seem that the DTA/DTL would be subject to a valuation allowance (and hit the current year P&L). | |
| 1 May 2006 | |
| JRE - That is not correct. However, I do not want to weigh-in further without knowing if an audit is being done by someone not authorized to so so. I do not want to be put in a position that I am deemed to be helping in an "illegal" audit.
I have moved the thread to the top of the list four times now, but the OP is not responding to my query. | |
| 1 May 2006 | |
| It could be that Frosty has misunderstood the word "audit". You are correct P in that only a CPA can audit financial statements and financial position of a corporation, but maybe she is doing a full disclosure financial (not audited) and therein lies the confusion?
Auditing carries a high degree of liability and I wouldn't audit if you paid me a million dollars to do so.... | |
| 3 September 2007 | |
| I'm doing a review for a contractor and calculating the DTL. Does the Domestic Prod. Activities Deduction enter into the equation as a permanent difference? If so, do I recalculate to the book income? Tax is reported on the cash basis.
Thanks! | |
Bushmaster (talk|edits) said: | 4 September 2007 |
| FASB 109 states you account for TEMPORARY differences in book/tax expenses using DTA or DTL. For 99% of us, this is depreciation and NOL. Yes, there are others, but these are most common. When taxes no longer become part of the equation, FASB 109 no longer becomes part of the equation. There is new guidance on FASB 109 regarding pass thru entities, but I don't have time to look at that.
DPAD doesn't enter into the equation because it is a permanent difference. If it skews your rate too much, I would disclose it in the statements as I typically do that anyway. | |
| 4 September 2007 | |
| Oh, for Pete's sake I've missed the obvious while trying to make this thing more difficult than it really is.
Thanks so much. | |
