ASC 740 Part 1: Practical Application for Accounting for Income Taxes Based on Income

Author: Lynn Fountain

As entities consider the effects of COVID-19 on their global operations, consideration is needed in understanding the accounting implications of these developments. The many ramifications of the COVID-19 pandemic, and an entity’s response to these changes, may impact an entity’s determination of income tax accounting and related estimates in a variety of areas.

President Trump signed into law the CARES Act on March 27, 2020, making this a Q1 event for calendar year companies. ASC 740 requires that an entity must recognize the effect of a change in tax law or rates in the period that includes the date of enactment. The business provisions in the CARES Act need to be analyzed and the estimated impact of those provisions recorded as part of continuing operations during the quarter.

This course will provide a high level overview of the basic concepts of ASC 740, but we will go further and discuss the impact of the pandemic and the CARES Act on Accounting for Income Based on Taxes, specifically deferred tax assets and deferred tax liabilities.

This will be the first in a two part series that examines the basics of ASC 740 and how the COVID pandemic has impacted the accounting process.

Publication Date: December 2020

Designed For
Business owners and operational professionals, Accountants and Finance professionals and Internal auditors, and Tax and Legal professionals.

Topics Covered

• Overview of issues related to COVID impact on ASC 740
• The scope of ASC 740 and types of taxes included
• Differentiate between temporary and permanent differences
• Differentiate between accounting estimates and errors and related COVID impacts
• Components of changes in tax rates, interim tax rates and related COVID implications
• How to account for uncertainty in income taxes and the impact of COVID

Learning Objectives

• Identify issues related to COVID impact on ASC 740
• Identify the scope of ASC 740 and types of taxes included
• Describe the objectives and basic principles of ASC 740 while recognizing how to define a tax based on income during the COVID pandemic
• Differentiate between temporary and permanent differences
• Recognize how to evaluate impact of COVID 19 on each component
• Differentiate between accounting estimates and errors and related COVID impacts
• Recognize how to examine components of changes in tax rates, interim tax rates and related COVID implications
• Identify how to account for uncertainty in income taxes and the impact of COVID

Level
Basic

Instructional Method
Self-Study

NASBA Field of Study
Accounting (2 hours)

Program Prerequisites
None

Advance Preparation
None