Tax-Basis Financial Statements

Tax-Basis Financial Statements

#7345A

COURSE MATERIAL

TABLE OF CONTENTS

TAX-BASIS FINANCIAL STATEMENTS

1

A. Definition of Special Purpose Framework and Tax Basis

1

B. New Definition of Tax-Basis Financial Statements

2

C. When to Use and Not Use Tax-Basis Financial Statements

5

D. Present Reporting and Disclosure Authority- Tax Basis

7

E. Items Peculiar to Tax-Basis Financial Statements

7

F. Disclosure and Financial Statement Requirements- Tax Basis

9

G. Making Tax-Basis Financial Statements Simpler to Use and Understand

10

H. Converting to Tax-Basis Financial Statements

39

I. Cash Flows Statement

42

J. Tax-Basis Financial Statement Titles

42

K. Disclosure and Financial Statement Requirements- Tax Basis

44

L. Authority for Tax-Basis Disclosures

46

M. Disclosures of Fair Value- Tax Basis

50

N. Miscellaneous Disclosures- Tax Basis

52

O. Other Tax-Basis Issues

52

P. Using Tax Basis Based on a Method That Differs From the Income Tax Return

52

Q. Combining Financial Statements Prepared in Accordance With the Tax Basis

of Accounting

58

R. Disregarded Entities and Tax-Basis Financial Statements

59

S. Tax Basis and the "Uses To File" Criterion

61

T. Tax-Basis Financial Statements- State Tax Basis of Accounting

62

U. Section 179 Depreciation- Tax Basis

62

V. Presenting Section 179 and Bonus Depreciation on the Tax-Basis Income Statement

65

W. Agreements Not to Compete- Tax-Basis Financial Statements

68

X. Presenting Insolvency in Tax-Basis Financial Statements

70

Test Your Knowledge

73

Solutions and Suggested Responses

77

Glossary

81

Index

83

Table of Contents ? i

NOTICE

This course and test have been adapted from supplemental material and uses the materials entitled Tax-Basis Financial Statements and is a component of Everything You Never Wanted to Know About GAAP ? 2016 by Steven C. Fustolo, CPA. Displayed by permission of the author. All rights reserved. Use of these materials or services provided by Professional Education Services, LP ("PES") is governed by the Terms and Conditions on PES' website (). PES provides this course with the understanding that it is not providing any accounting, legal, or other professional advice and assumes no liability whatsoever in connection with its use. PES has used diligent efforts to provide quality information and material to its customers, but does not warrant or guarantee the accuracy, timeliness, completeness, or currency of the information contained herein. Ultimately, the responsibility to comply with applicable legal requirements falls solely on the individual licensee, not PES. PES encourages you to contact your state Board or licensing agency for the latest information and to confirm or clarify any questions or concerns you have regarding your duties or obligations as a licensed professional. ? Professional Education Services, LP 2016 Program Publication Date 9/13/2016

ii ? Table of Contents

TAX-BASIS FINANCIAL STATEMENTS

Course Objectives

After completing this course, you should be able to:

? Recognize some of the M-1 differences that do not apply to tax-basis financial statements. ? Recognize how to account for an accounting change in tax-basis financial statements. ? Recall how to account for and present nontaxable and nondeductible items in tax-basis financial

statements. ? Identify the disclosure requirements for tax-basis financial statements. ? Recognize the appropriate and inappropriate financial statement titles for tax-basis financial

statements.

Given the wave of complexity that has affected the accounting profession over the past decade, using tax-basis1 financial statements has become increasingly popular with nonpublic businesses.

More than ever, major differences now exist between GAAP and taxable income due to two factors. First, there has been a continued upheaval in the tax code since the mid-1980s. Second, the FASB has issued numerous GAAP statements in the post-Enron period.

As a result, small business owners find a continued conflict between balancing a desired lower taxable income for tax planning with higher financial statement income necessary to appease the bank or third party investor. In certain cases, tax-basis statements act to bridge this gap so that tax and financial income are more congruous.

A. DEFINITION OF SPECIAL PURPOSE FRAMEWORK AND TAX BASIS

Before the author continues in this section, the term "income tax basis" is a term that was in effect prior to 2012. From 2012, that term is replaced with the new term "tax basis" based on newly issued auditing, compilation and review standards.

Oddly enough, the rules for non-GAAP frameworks, such as income tax basis, have existed within auditing literature since inception. SAS No. 62, Special Reports, originally introduced the concept of other comprehensive basis of accounting (OCBOA), a term that has included income tax basis, cash/modified cash basis, and regulatory basis of accounting. Parallel guidance was included with the SSARSs.

Effective 2012, the Auditing Standards Board (ASB) reissued all auditing standards under its Clarity Project. In doing so, the ASB issued SAS Nos. 122-126, which was subsequently supplemented by SAS Nos. 127 and 128.

__________________________________________________________________________________

1. The previous term "income tax basis" is superseded by the term "tax basis" under new auditing, compilation, and review standards.

Tax-Basis Financial Statements ? 1

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download