KPMG ASC 740 GUIDE - trunking

KPMG's Guide to ASC 740: Income Taxes Explained

ASC 740, also known as Accounting Standards Codification 740, provides the accounting guidance for income taxes. The ASC 740 standard aims to recognize current and future tax consequences of events that have been recognized in an entity's financial statements or tax returns. KPMG publishes a comprehensive guide to help navigate the complexities of ASC 740.

Understanding ASC 740: A Deep Dive

The Financial Accounting Standards Board (FASB) codified accounting standards into the Accounting Standards Codification (ASC). ASC 740 specifically addresses how companies should account for income taxes. This includes determining the amount of taxes payable or refundable for the current year, as well as the deferred tax assets and liabilities for the future tax consequences of events that have already occurred.

Key Components of ASC 740

ASC 740 encompasses several key concepts. Firstly, it distinguishes between current and deferred tax assets and liabilities. Current tax assets and liabilities relate to taxes payable or refundable for the current year. Deferred tax assets and liabilities, on the other hand, relate to the future tax consequences of temporary differences and carryforwards.

Temporary differences arise when the tax basis of an asset or liability differs from its financial reporting basis. Carryforwards refer to tax losses or credits that can be used to reduce taxable income in future periods. Another critical aspect of ASC 740 is the recognition and measurement of these deferred tax assets and liabilities. Companies must assess the likelihood that deferred tax assets will be realized, considering available evidence such as future taxable income and tax planning strategies. A deferred tax asset is only recognized if it is more likely than not (a likelihood of more than 50%) that it will be realized.

KPMG's ASC 740 Guide: A Valuable Resource

KPMG's ASC 740 guide is a detailed resource that provides practical guidance on applying the principles of ASC 740. It typically includes explanations of the requirements, illustrative examples, and insights on current issues and interpretations. This guide helps companies understand and implement ASC 740 effectively, leading to more accurate and transparent financial reporting.

The guide often covers topics such as: accounting for uncertain tax positions (ASC 740-10), valuation allowance assessments, tax rate changes, and the impact of tax law changes on deferred tax assets and liabilities.

Benefits of Using KPMG's Guide

Using KPMG's guide can significantly benefit companies by providing a clear and concise explanation of the complex requirements of ASC 740. It helps ensure compliance with accounting standards, improves the accuracy of financial reporting, and facilitates informed decision-making regarding tax planning and strategy. kpi book

Frequently Asked Questions

What is the main objective of ASC 740?

The main objective is to recognize the current and future tax consequences of events recognized in a company's financial statements.

How does ASC 740 define a deferred tax asset?

A deferred tax asset represents the future tax benefit from deductible temporary differences or carryforwards.

What is a valuation allowance under ASC 740?

A valuation allowance reduces the carrying amount of a deferred tax asset if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

What are temporary differences in ASC 740?

Temporary differences are differences between the tax basis of an asset or liability and its reported amount in the financial statements.

Where can I find the official ASC 740 guidance? kpic

The official guidance is found in the FASB Accounting Standards Codification.

Summary

KPMG's ASC 740 guide serves as a comprehensive resource for understanding and implementing the accounting standards for income taxes. By offering detailed explanations and practical examples, it empowers companies to navigate the complexities of ASC 740 and achieve accurate financial reporting. Understanding the core components of ASC 740, such as current and deferred tax assets and liabilities, is crucial for proper financial reporting.