US FAS 109 training package.ppt

fas109 accountingforincometaxes statementoffinancialaccountingstandardsno 109november24 2004 fas109 issuedinfebruary1992guidanceforaccountingforincometaxesbalancesheetapproachforfinancialaccountingandreportingofincometaxesobjectivesrecognizeamountofincometaxespayableorrefundableforcurrentyearrecognizetheamountofdeferredincometaxassetsandliabilitiesforthefuturetaxconsequencesofeventsthathavealreadybeenrecognizedineitherthecompany sfinancialstatementsorlocaltaxreturns butnotyetforboth whydoweneedfas109 purposeoffas109istoproperlymatchincometaxexpensewiththeeconomicincomeearned theprinciplesoffas109followtheoverallaccrualprinciplesutilizedforu s gaapfinancialstatements whenaneventisrecognizedinthefinancialstatements theeventualincometaxconsequencesofthe event shouldalsoberecognizedatthesametime thatis match theincometaxtothesamefinancialstatementperiodthatincludesthegainorloss incomeorexpense etc thematchingisaccomplishedthroughtherecordingofdeferredtaxliabilitiesanddeferredtaxassets thebasics incometaxespayableorrefundablearecalculatedonacashbasis theyreflectwhatisowed refundable onthelocalincometaxreturnforthecurrentyear deferredtaxliabilities assetsaretemporarydifferencesmultipliedbythecombinedstatutorytaxrate federalandblendedstate local andarebookedonthebalancesheet temporarydifferencesarisebecausethetaxtreatmentofanitemistemporarilydifferentfromitsfinancialaccountingtreatment cancausetaxableincometobehigherorlowerthanbookincomeinanygivenyear temporarydifferences anotherexampleofanitemthatcanresultinatemporarydifferenceareaccruedexpenses theymaybedeductibleontheincometaxreturnonlywhenactuallypaid notwhenrecordedforfinancialstatementpurposes therearealimitednumberofexceptionstotherecognitionofdeferredincometaxes someofwhichareasfollows basisdifferencesthatwillnotresultinfuturetaxableordeductibleamounts certaintemporarydifferencesaddressedbyapb23 asamendedbyfas109 temporarydifferencesrelatedtogoodwillwhentheamortizationofgoodwillisnotdeductiblefortaxpurposes certainexistingaccountingrequirementsforleveragedleases temporarydifferencesresultingfromintercompanyprofitsonassetsthatremainwithinthegroup deferredtaxassets dtas deferredtaxassets dtas arisewhendeductionsarereflectedinthefinancialstatementsbeforebeingreflectedinataxreturn e g pension opeb financialstatementdeductions taxreturndeductions or incomeisreflectedinataxreturnbeforebeingreflectedinthefinancialstatements e g pre paidservices taxableincome financialstatementincomeintheyearadtareverses whentheimpactofanexpenseorincomeitemthatwastemporarilydifferentforbookandtaxbecomesthesameforboth itcausestaxableincometobelowerthanfinancialstatementincome taxableincome financialstatementincome pleasenotethereversalprocesscantakemorethanoneyear deferredtaxliabilities dtls deferredtaxliabilities dtls arisewhendeductionsarereflectedinataxreturnbeforebeingreflectedinthefinancialstatements e g accelerateddepreciation taxdeductions financialstatementdeductions or incomeisreflectedinthefinancialstatementsbeforebeingreflectedinataxreturn e g installmentsale financialstatementincome taxableincomeintheyearadtlreverses whentheimpactofanexpenseorincomeitemthatwastemporarilydifferentforbookandtaxbecomesthesameforboth itcausestaxableincometobehigherthanfinancialstatementincome taxableincome financialstatementincome pleasenotethereversalprocesscantakemorethanoneyear dtas dtls basedonbasisdifferences deferredtaxassets dtas anddeferredtaxliabilities dtls arebasedonbasisdifferencesbetweenthebookbasisperu s gaapandthetaxbasisperthelocalincometaxreturn basisdifferenceforassetsonthebalancesheet bookbasis taxbasis dtltaxbasis bookbasis dtabasisdifferenceforliabilitiesonthebalancesheet bookbasis taxbasis dtataxbasis bookbasis dtl balancesheetimpactofdtas dtls bothdtasanddtlsarerecordedonthebalancesheet theyarecomputedbytakingthefuturetaxableincomeamountorthefuturetaxdeductionamounttimesthestatutorytaxrate futuretaxableincome deductionxstatutorytaxrate dta dtl deferredincometaxesclassification deferredincometaxassetsandliabilitiesmustbeclassifiedaseithercurrentornon currentaccordingtotheclassificationoftherelatedassetorliabilitythatthedeferredincometaxisderivedfrom adeferredincometaxassetorliabilitythatisnotrelatedtoanassetorliability suchasoperatinglossortaxcreditcarryforward isclassifiedbasedontheexpectedreversalorutilizationdate reversalorutilizationbeyondoneyearwillrequiretheclassificationtobenon current example example depreciation temporarydifferences anexampleofsomethingthatcancauseatemporarydifferencearedepreciationmethods usedtocalculatedepreciation differentdepreciationmethodsareoftenusedforthelocalincometaxreturnversustheu s gaapfinancialstatements overtimethesameamountoftotaldepreciationwillberecognizedinthelocalincometaxreturnandintheu s gaapfinancialstatements butwillbechargedtodifferentperiods deferredincometaxes depreciation basedondepreciationdifference deferredincometaxes depreciationbasedonbasisdifference example example u s warrantyreserve u s warrantyreserveexample intheyear2003delphiset up 2 000inwarrantyreservesintheu s andreflectsabookexpenseof 2 000 nopaymentstosettleanywarrantyclaimsaremadein2003 ondelphi syear2003federalu s incometaxreturnthisexpensewouldhavetobereversedsinceadeductionforwarrantiescannotbetakenuntilapaymentisactuallymade u s warrantyreserveexample cont assumingnootherbook taxdifferencesforyear2003anddelphi su s pre taxbookincomeof 10 000 delphi su s taxableincomefor2003wouldbe 12 000 foryear2004 delphidoesnotcreateanyadditionalu s warrantyreserves butdoespayout 2 000tocoverwarrantyclaims in2004 delphi su s pre taxbookincomeis 2 000 theu s warrantypaymentsaredeductiblein2004 assumingnootherbook taxdifferencesin2004 delphi su s taxableincomewouldbe 0 u s warrantyreserveexample cont inyear2003 thedtarelatedtothewarrantyreservesneededtobebookedintheyear endfinancialstatementswouldbe 740 2 000 x37 35 u s federalandblended2 u s state local inyear2004 thedeductionwastakenforthe 2 000warrantyreservessincepaymentsweremade therefore thedtaof 740wouldbereversedsincethedeductionwastakenonthe2004taxreturn valuationallowance anetdtaisreduced bya valuationallowance if basedontheweightofavailableevidence itismorelikelythannot 50 thatsomeportionorallofthedtaswillnotberealized allavailableevidence bothpositiveandnegative isconsideredtodeterminewhether basedontheweightoftheevidence avaluationallowanceisneededforsomeportionorallofadeferredtaxasset positiveandnegativeevidenceincludesfinancialpositionandresultsoffutureoperations italsolookstoothermeasures valuationallowance cont examplesofpositiveevidence strongearningshistorysalesbacklogappreciatednetassetvaluesexamplesofnegativeevidence cumulativelosses commonlythoughttobethemostrecent3yearperiod includingthecurrentyear carryforwardsexpiringunusedcontingenciesindustrytrendsgoing concernissues bookincometaxexpense provision thebookincometaxexpense provision isderivedbytakingpre taxbookincomeandbuildingintheimpactofpermanenttaxdifferencesbetweenbookandtaxtoarriveatbooktaxableincome thebooktaxableincomeisthenmultipliedbythestatutorytaxrate bookincometaxexpense provision cont temporarydifferencesarenotfactoredintobookincometaxexpense provision becauseovertimetheamountrecognizedforbookandtaxisthesame theonlyimpacttemporaryitemshaveonbookincometaxexpenseisontheclassificationbetweencurrentanddeferred non u s current9308 deferred9316 inthecaseofdelphi thecombinedu s statutorytaxrateis37 35 federalandblended2 state local fornon u s locations thestatutorytaxratevariesfromcountrytocountry bookincometaxexpense provision cont permanentdifferences itemsthatcreateadifferenceinthetreatmentofanincomeorexpensebetweenthefinancialstatementsandincometaxreturnsthatwillneverreverseovertime examples mealsandentertainmentpenaltiesnon deductiblegoodwilltaxcredits effectivetaxrate etr theeffectivetaxrate etr istherateoftaxthatacompanyactuallyusestocalculatetheincometaxexpenserecordedinitsincomestatement itiscalculatedbytakingthebookincometaxexpensedividedbythepre taxbookincome thedifferencebetweenthestatutorytaxrateandtheetrisdueonlytotheimpactofpermanentdifferences effectivetaxrate cont thecurrent asof9 30 04 overallworldwideetrfordelphiis5 for2004vs anapproximateworldwideblendedstatutorytaxrateof32 thedifferencebetweentheworldwideetr worldwideblendedstatutorytaxrateislargelydueto theu s losses taxbenefit offsettingmuchofthenon u s income taxexpense variousnon u s countrieshavetaxholidaysvariouspermanentdifferences suchastaxcreditsandmeals entertainment thatexistthroughouttheworldwidedelphiorganization non u s incometaxprovision eachnon u s unitisresponsiblefortheirownfas109recordingandreporting analysisofthenon u s incometaxprovision headquarterstaxstaffanalyzesandmonitorstheetrusedtorecordthebookincometaxexpensebycomparingthetrialbalancetotheetrprojectedontheschedule21 preparedbythenon u s unitsthroughouttheyear theprojectedannualetrisprovidedinfebruary anupdated mid year etrprojectionisprovidedinjuly whichisbasedon6monthsactualand6monthsprojecteddata inoctober amoredetailed9monthsubmissionisrequired 9mthactual 3mthprojected updatedetr schedule21 scheduledetailingtheitemscomprisingthedtlsanddtas schedule7 scheduledetailingthenetoperatinglossesfromthenon u s units localtaxreturns schedule20 injanuary duringtheyear endclose theschedules mentionedabove areupdatedfor12monthsofactualdata theinformationprovidedisalsousedtopreparethefinancialstatementincometaxfootnotes non u s incometaxprovision cont delphihashadareoccurringd tauditpointregardingtheaccuracyoftherecordingoftheincometaxesonthenon u s trialbalances theincreasedrequirementsforthisyearwithregardtothe9monthsubmissionweretoimprovetheaccuracyofthenon u s trialbalancesubmissionsandthedatacollectionforthiscomingyear end itiscurrentlyviewedbyd tthatdelphihasasignificantdeficiencyinitsinternalcontrolsundersarbanes oxleyoveritsaccountingforincometaxeswithregardtoitsnon u s units thismustbecorrectedbyyear end reportingdeferredincometaxesonschedule7 temporarydifferencesaretobetrackeditembyitem theseitemsarereportedonschedule7 detailofdeferredtaxassetsandliabilities dtas dtls commonmistakesfoundonschedule7 thestatutorytaxrateusedtocalculatedeferredincometaxesisnottheproperone theproperstatutorytaxratetobeusedisthestatutorytaxratethatisenactedfornextyear bothadeferredincometaxasset dta andadeferredincomeliability dtl isreportedforthesameiteminsteadofbeingshownasanetdtaordtl vaguedescriptionsaregiventoitems thenetbalanceofschedule7 netdtas dtls doesnotsupportthenetbalanceofdeferredincometaxesreportedonthetrialbalanceinhyperion reportingnetoperatinglossesonschedule20 theunusednetoperatinglossesfromthelocaltaxreturnmustbereportedonschedule20 nolsummary commonmistakesfoundonschedule20 theamountoflossesreportedaretheamountoflossesreportedonthetrialbalance booklosses insteadofbeingtheamountoflossesreportedonthelocaltaxreturn reportingetronschedule21 theeffectivetaxrateiscalculatedusingtheschedule21 reconciliationfromstatutorytaxratetoeffectivetaxrate commonmistakesfoundonschedule21 vaguedescriptionsaregiventoitems temporaryitemsarereportedinthe permanentadjustments and other taxeffect sections thestatutorytaxrateusedtocalculatetaxesatthestatutorytaxrateisnottheproperone thestatutorytaxratetobeusedisthestatutorytaxratethatisenactedforthecurrentyear taxholidayquestionsarenotrespondedtoproperly whenatrialbalanceisunderataxholidayperiod yes shouldbeselectedandthestartingyearandendingyearoftheholidayperiodmustbeprovided reportingetronschedule21 cont importantpointsregardingschedule21 itemstobereportedunderthe taxcredit sectionarecreditsgrantedbythetaxingauthority prioryearadjustmentsimpactingthep l i e permanent needtobereportedinthe other taxeffect section thetotaltaxprovision expense reportedonschedule21doesnotrepresentthecashtaxyouwillpayforthecurrentyear butratherthetotalincometaxexpense whichincludesbothcurrentanddeferred thatistoberecordedonthetrialbalanceforthecurrentyear questions accountingforincometaxproblem1 problem1 determinationofbasisdifferences problem1 analysisofchangeinbasisdifferences problem1 incometaxexpensecalculation problem1 flowofincometaxexpenseelements problem1 entry problem1schedule7page1 problem1 schedule7page2 problem1 schedule20page1 problem1 schedule20page2 problem1 schedule21page1 proble