Question

After a decade or so in mining, you decide to change jobs because you wanted to do nothing with anything related to tax or tax accounting ever again and in a regulated industry there was too much of this. A few years later, however, the controller comes to you with a comment letter from the SEC which expresses concern about how your company reports its current and deferred income tax accounts in its financial reports. You look as white as a sheet, because you hoped to never do tax accounting again. Find and interpret the appropriate ASC guidance for how to initially measure deferred taxes. (You may need to cite more than one ASC paragraph.)

Answer 1

INITIAL MEASUREMENT

The consolidated amount of current and deffered tax expense for a group that files a consolidated tax return shall be allocated among the members of the group whwhen tthose members issue separate financial statements. The method adopted shall be systematic, rational and consistent with the broad principle established by this subtopic. A method that allocates current and deffered taxes to members of the group by applying this topic to each member as if it were a separate taxpayer meets those criteria. In this situation, the sum of the amount allocated to individual member of the group may not equal the consolidated amount.

An entity is not required to allocate the consolidated amount of current and deferred tax expense to legal entities that are not subject to tax and disregarded by the taxing authority. The election is not required for all members of a group that files a consolidated tax return, the election may be made for individual member of the group that files a consolidated tax return. An entity shall not make the election to allocate the consolidated amount of current and deferred tax expense for legal entities that are partnership or other pass through entities that are not wholly owned.