Information to Outside Cpa Essay

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Individual Assignment week #1 Research paper 1 Information to outside CPAs ACC\545 July-16-2013 Prof\ KAREN DE MICHELIS I been assigned from our company to provide you with the explanation that you need about; • The methodology used to determine deferred taxes • The procedures for reporting accounting changes and error corrections • The rationale behind establishing the subsidiary as a corporation First I will explain to you the 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

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