Question

Week 10 eActivity Use the Internet to research articles on ASC 740 (SFAS 109) and International Accounting Standard (IAS) 12.

"Taxes" Please respond to the following:

From the e-Activity, create a scenario reflecting the differences between GAAP and international accounting standards for taxes.

Determine which reporting standard best reflects financial reporting for taxes, and support your position.

Examine the impact of FIN 48 (Accounting for the Uncertainty in income taxes) on GAAP reporting. Identify the benefits of the requirements on financial reporting.

Assess whether FIN 48 was necessary, and support your position.

Answer 1

As per the International Accounting Standards’ income taxes rules, for treatment of accounting taxes, comprehensive balance sheet method should be used. Using comprehensive balance sheet provides a deeper insight into all related transactions, events and current taxes.

The future tax consequences of the future will help to recover or settle the carrying amount of the entity assets or liabilities. The difference between carrying out the amount of the assets and liabilities are used to carry forward the taxes, losses and credit which are known as limited exceptions such as deferred tax deferred tax liabilities or we can also say deferred tax assets. The GAAP also exists to provide the accounting principles, standards and also principles which result in financial statements which are capable of comparison against each other. The IRS helps to maintain and also develop the tax accounting framework which are made to levy tax against the net earnings or the taxable income. Taxable income differs from the revenue as defined by GAAP so to collect the tax at the earlier of the earning or the receiving of the cash. Tax basis can be cash basis or also by accrual basis. The international accounting standard for tax best reflects the financial reporting for taxes as the basic objective of IAS 12 is to set down the basic accounting treatment for income taxes. In the year 2006 the financial accounting standard boards statements so as to eliminate the inconsistency in the accounting for uncertain tax provisions in the financial statement in accordance with U.S. GAAP. FIN 48 which issued new rules for recognition and measurement of all the tax potions.

The benefit of reporting financial reporting is that it helps to draw three reports like balance sheets, income tax statement and cash flow statement. These statements are very necessary to be draw by all the business houses as to know the basic position of the organization (Bluest, 2011). FIN 48 is very necessary because is an official interpretation of United States accounting which helps the business house to examine and disclose all their income tax risks so that no fraud activities can be carried on.