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Corporate Income Tax Provision Checklists

Corporate Income Tax Provision Checklists

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    WGL

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The corporate income tax provision is an important and complex component of the financial statements and related disclosures, and it is receiving ever-increasing scrutiny due to its significance to the operating statement. In recent years, tax-related issues have been a primary reason for restating financial statements, and accounting for income taxes has been a critical source of material weaknesses in internal controls over financial reporting.

To help readers keep pace with the many complexities surrounding this fundamental area of accounting, Corporate Income Tax Provision Checklists provides an “integrated approach.” This approach combines compliance with accounting and regulatory requirements with adoption of best practices in evaluating risks and controls. The steps in the integrated approach are flexible where appropriate, so each entity can identify the most relevant risks and controls and evaluate them in an efficient and cost-effective manner. When used as part of a dynamic year-round process, the checklists will help management take steps to address risks in a timely manner before the risks can adversely affect the entity’s financial reporting,

The integrated checklists are organized into three broad categories:

  • ¶102 through ¶105 provide a flexible framework for assessing income tax-related risks and controls, along with customizable templates to help the entity focus on the risk factors that are most relevant to its control objectives and assertions and its unique facts and circumstances.
  • ¶106 to ¶110 help the entity focus on the relevant accounting requirements for recognition and measurement of income taxes, including income tax provisions, deferred taxes, valuation allowances, and unrecognized tax benefits.
  • ¶111 through ¶113 help the entity focus on the relevant reporting requirements including presentation and disclosure of income taxes in both quarterly and annual financial statements.

Since not every requirement will apply to every entity in every reporting period, the second and third categories serve the dual purposes of helping entities: (a) update control objectives and assertions during the year, and (b) review for compliance with all applicable requirements at year-end or quarter-end.

The steps within each of the three major categories of checklists are summarized as follows: 

1. Review the framework and templates for assessing risks and controls. To help management compile the relevant information in an organized and systematic way, the checklist includes the following: 

  • Basic framework. ¶ 102 contains a flexible framework to help entities of all sizes establish an effective process for identifying and evaluating tax-related risks and controls.
  • Internal risk factors. ¶ 103 provides a customizable template for identifying and evaluating internal risk factors (such as changes in the entity’s operations, business strategy, personnel, and systems) and considering the related control implications.
  • External risk factors. ¶ 104 provides a customizable template for identifying and evaluating external risk factors (such as changes in tax laws for various jurisdictions such as federal, state, or foreign tax jurisdictions) and considering the related control implications.
  • Standard reporting package. ¶ 105 of the checklist provides a customizable reporting package for compiling data from the business units or subsidiaries, including account balances and reconciliations, along with questions to assess related controls, including the use of spreadsheets and management reviews.

 2.  Review the accounting requirements for recognition and measurement of income taxes. This section provides checklists for the steps involved in accounting for income taxes. 
  • Unrecognized Tax Benefit Analysis. ¶ 106 facilitates compliance with the requirements related to accounting for uncertain income tax positions, including the identification of uncertain tax positions and the proper measurement and reporting of resulting unrecognized tax benefits.
  • Current Income Tax Procedure. ¶ 107 provides a checklist for the accurate determination of current income tax expense and related balance sheet accounts.
  • Deferred Income Tax Procedure. ¶ 108 provides a checklist for the accurate determination of deferred income tax expense and related balance sheet accounts.
  • Valuation Allowance Analysis. ¶ 109 provides an approach to the consideration of relevant information with respect to determining if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
  • Special Areas for Income Taxes. ¶ 110 reviews exceptions to the general principles involved in accounting for income taxes and highlights incremental guidance for special areas and specific industries.

3. Review the relevant requirements for presentation and disclosure of income taxes.  This section provides checklists for the steps involved in the external financial reporting of income taxes, including presentation and disclosure of income taxes in both quarterly and annual financial statements.
  • Accounting for Income Taxes in Interim Periods. ¶ 111 reviews the recognition of income tax expense (or benefit) in interim periods, including the use of an annual estimated effective tax rate, and it contains steps to help entities determine that their disclosure controls are effective.
  • Financial Statement Presentation Checklist. ¶ 112 is directed at the proper reporting of income tax-related items in the income statement, balance sheet, statement of cash flows, and statement of changes in stockholders' equity and other comprehensive income.
  • Income Tax Disclosure Checklist. ¶ 113 reviews the financial statement disclosure requirements for items related to income taxes, including the US GAAP disclosure requirements and the supplemental disclosure requirements for SEC registrants.

Documentation memos document the relevant analysis and the corresponding conclusions with respect to: (1) summarization of the period's tax activities and compliance with FASB ASC 740; (2) documenting changes in the tax reserve; (3) overall compliance with FASB ASC 740-10; (4) procedures performed in determining a conclusion on the need for a valuation allowance related to deferred tax assets and (5) information and a checklist with respect to the current requirements for filing Form 1120, Schedule UTP, Uncertain Tax Position Statement.

Corporate Income Tax Provision Checklists also contains sample SEC filings from Forms 10-K and 10-Q and sample SEC comment letters redacted to focus solely on income tax provision issues.

DESCRIPTION

The corporate income tax provision is an important and complex component of the financial statements and related disclosures, and it is receiving ever-increasing scrutiny due to its significance to the operating statement. In recent years, tax-related issues have been a primary reason for restating financial statements, and accounting for income taxes has been a critical source of material weaknesses in internal controls over financial reporting.

To help readers keep pace with the many complexities surrounding this fundamental area of accounting, Corporate Income Tax Provision Checklists provides an “integrated approach.” This approach combines compliance with accounting and regulatory requirements with adoption of best practices in evaluating risks and controls. The steps in the integrated approach are flexible where appropriate, so each entity can identify the most relevant risks and controls and evaluate them in an efficient and cost-effective manner. When used as part of a dynamic year-round process, the checklists will help management take steps to address risks in a timely manner before the risks can adversely affect the entity’s financial reporting,

The integrated checklists are organized into three broad categories:

  • ¶102 through ¶105 provide a flexible framework for assessing income tax-related risks and controls, along with customizable templates to help the entity focus on the risk factors that are most relevant to its control objectives and assertions and its unique facts and circumstances.
  • ¶106 to ¶110 help the entity focus on the relevant accounting requirements for recognition and measurement of income taxes, including income tax provisions, deferred taxes, valuation allowances, and unrecognized tax benefits.
  • ¶111 through ¶113 help the entity focus on the relevant reporting requirements including presentation and disclosure of income taxes in both quarterly and annual financial statements.

Since not every requirement will apply to every entity in every reporting period, the second and third categories serve the dual purposes of helping entities: (a) update control objectives and assertions during the year, and (b) review for compliance with all applicable requirements at year-end or quarter-end.

The steps within each of the three major categories of checklists are summarized as follows: 

1. Review the framework and templates for assessing risks and controls. To help management compile the relevant information in an organized and systematic way, the checklist includes the following: 

  • Basic framework. ¶ 102 contains a flexible framework to help entities of all sizes establish an effective process for identifying and evaluating tax-related risks and controls.
  • Internal risk factors. ¶ 103 provides a customizable template for identifying and evaluating internal risk factors (such as changes in the entity’s operations, business strategy, personnel, and systems) and considering the related control implications.
  • External risk factors. ¶ 104 provides a customizable template for identifying and evaluating external risk factors (such as changes in tax laws for various jurisdictions such as federal, state, or foreign tax jurisdictions) and considering the related control implications.
  • Standard reporting package. ¶ 105 of the checklist provides a customizable reporting package for compiling data from the business units or subsidiaries, including account balances and reconciliations, along with questions to assess related controls, including the use of spreadsheets and management reviews.

 2.  Review the accounting requirements for recognition and measurement of income taxes. This section provides checklists for the steps involved in accounting for income taxes. 
  • Unrecognized Tax Benefit Analysis. ¶ 106 facilitates compliance with the requirements related to accounting for uncertain income tax positions, including the identification of uncertain tax positions and the proper measurement and reporting of resulting unrecognized tax benefits.
  • Current Income Tax Procedure. ¶ 107 provides a checklist for the accurate determination of current income tax expense and related balance sheet accounts.
  • Deferred Income Tax Procedure. ¶ 108 provides a checklist for the accurate determination of deferred income tax expense and related balance sheet accounts.
  • Valuation Allowance Analysis. ¶ 109 provides an approach to the consideration of relevant information with respect to determining if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
  • Special Areas for Income Taxes. ¶ 110 reviews exceptions to the general principles involved in accounting for income taxes and highlights incremental guidance for special areas and specific industries.

3. Review the relevant requirements for presentation and disclosure of income taxes.  This section provides checklists for the steps involved in the external financial reporting of income taxes, including presentation and disclosure of income taxes in both quarterly and annual financial statements.
  • Accounting for Income Taxes in Interim Periods. ¶ 111 reviews the recognition of income tax expense (or benefit) in interim periods, including the use of an annual estimated effective tax rate, and it contains steps to help entities determine that their disclosure controls are effective.
  • Financial Statement Presentation Checklist. ¶ 112 is directed at the proper reporting of income tax-related items in the income statement, balance sheet, statement of cash flows, and statement of changes in stockholders' equity and other comprehensive income.
  • Income Tax Disclosure Checklist. ¶ 113 reviews the financial statement disclosure requirements for items related to income taxes, including the US GAAP disclosure requirements and the supplemental disclosure requirements for SEC registrants.

Documentation memos document the relevant analysis and the corresponding conclusions with respect to: (1) summarization of the period's tax activities and compliance with FASB ASC 740; (2) documenting changes in the tax reserve; (3) overall compliance with FASB ASC 740-10; (4) procedures performed in determining a conclusion on the need for a valuation allowance related to deferred tax assets and (5) information and a checklist with respect to the current requirements for filing Form 1120, Schedule UTP, Uncertain Tax Position Statement.

Corporate Income Tax Provision Checklists also contains sample SEC filings from Forms 10-K and 10-Q and sample SEC comment letters redacted to focus solely on income tax provision issues.

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