Information Regarding CPA's Report - Essay Example

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Information Regarding CPA's Report

The deferral method specifically focuses on income statement and the tax expense is calculated on the basis of identified revenues and expenses in the income statement. However, the deferral method is not acceptable under GAAP. In contrast, the liability method would estimate the future taxes payable or receivable. Hence, the liability method focuses on the estimation of current as well as deferred tax assets and liabilities. “The amount of income tax expense recognized for a period is the amount of income taxes currently payable or refundable, plus or minus the change in aggregate deferred tax assets and liabilities” (CCH Editorial, p.28). The liability method primarily focuses on the balance sheet. The changes in the balance sheet elements are used to calculate the amount of income tax expense under this method. 2. Procedures for Reporting Accounting Changes and Error Corrections Generally, accounting changes are of two types including changes in accounting principle and changes in accounting estimate. Mainly, there are two approaches available for reporting accounting changes. They are retrospective approach and prospective approach. Under the retrospective approach, comparative financial statements are recast to clearly illustrate the changes. ...Show more

Summary

Memo Sub: Requested Information Regarding CPA’s Report From, (Name), Controller To, Jane Smith, CEO, XYZ Company 1. Methods Used to Determine Deferred Taxes Deferred tax can be defined as an accounting concept which indicates a future tax liability or asset arising out of temporary differences between book value of assets and liabilities and their worth for tax purposes…
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