CPA REPORT

CPA REPORT



CPA REPORT

The methodology used to determine deferred taxes

There could be following reasons for deferred taxes, if we arrange measures for consolidation:

Differences within the limits of consolidation of investment in subsidiaries

Affecting net income debt consolidation

Elimination of intermediate result

Intercompany distribution of profit

Intercompany loss compensation

Evaluation with the Equity-Method

If the accrual of deferred taxes is fixed on differences, which arise affecting net income and which could be solved affecting net income, we have a perception on the profit commission statement. The perception on the profit commission statement is also called timing concept. The timing concept focuses on the timing differences and excludes the temporary differences. The timing is mainly used for deferred taxes out of the German Commercial Code.

IAS uses the temporary concept. This concept concentrates on the balance sheet. The consequence is that you have regularly differences in each position in your balance sheet, which result into differences between the reporting base and the tax base of each position in your balance sheet. The interest of the temporary concept is to investigate the right tax- assets and tax-liabilities on a special balance sheet key date. Out of this aim, it is unimportant to know if the differences, which arise affecting net income also solve affecting net income. It's only important to know that the temporary concept includes not only the timing differences and excludes the permanent differences. It includes also the temporary differences (Johnson, Jamal and Berryman, 1999).

Reporting Change in Accounting Principle

A change in accounting principle is reported in a retrospective manner using only direct impacts and related tax impacts of the change.

When indirect impacts are actually incurred, the indirect impacts should be reported in the accounting period of the change.

The following process is used to account for a change in principle:

Report in appropriate assets and liabilities the cumulative effect of the change in the first accounting period presented for periods prior to the accounting periods presented.

Adjust beginning retained earnings (or other appropriate accounts) for an offsetting amount that was reported in the assets and liabilities in the same accounting period that assets and liabilities were adjusted.

Adjust the financial statements of each accounting period presented as if the new accounting principle had been applied during that accounting period (period-specific impact of the change).

When the cumulative effect of the change can be determined but the period- specific impact cannot be computed, the following accounting is required:

Adjust the appropriate assets and liabilities in the first accounting period presented where the change can be applied.

Adjust beginning retained earnings (or other appropriate accounts) for an offsetting amount that was reported in the assets and liabilities in the same accounting period that assets and liabilities were adjusted.

When the cumulative effect of the change in principle cannot be determined, the following accounting is appropriate:

Account for at the earliest date possible in a prospective manner.

Example includes a change in inventory methods to LIFO.

If one of the following is met, it is assumed that an entity cannot ...