What does ASC 740 mean?

ASC 740 governs how companies recognize the effects of income taxes on their financial statements under U.S. GAAP. This applies only to taxes based on income—not sales, payroll, or property taxes—per ASC 740-10. Calculating the provision for income taxes under ASC 740 presents a difficult technical challenge.

What is ASC 740 FIN 48?

FIN 48 (mostly codified at ASC 740-10) is an official interpretation of United States accounting rules that requires businesses to analyze and disclose income tax risks. It was effective in 2007 for publicly traded entities, and is now effective for all entities adhering to US GAAP.

Is ASC 740 the same as FIN 48?

ASC 740, formerly known as FIN 48, offers guidance on uncertain tax positions. It is broad in scope and now applies to both nonprofit and for-profit entities.

What types of entities does ASC 740 apply to?

ASC 740 applies only to business entities subject to income taxes. The question of whether a wide variety of state taxes falls under the rubric “income taxes” has raised vexing questions.

What is the scope of ASC 740?

What is the scope of ASC 740? ASC 740 establishes standards of financial accounting and reporting for currently payable income taxes as well as deferred income taxes payable at some point in the future.

When did ASC 740 become effective?

January 1, 1992
740-10-55-140 In August 1991, a state amended its franchise tax statute to include a tax on income apportioned to the state based on the federal tax return. The new tax was effective January 1, 1992.

Do private companies have to follow ASC 740?

ASC 740-10 clarifies requirements of pass-through entities and tax-exempt not- for-profit organizations. Notably, ASC 740 is required only under United States Generally Accepted Accounting Principles (US-GAAP) and is not present in international accounting standards.

What is outside the scope of ASC 740?

Withholding taxes that a reporting entity pays to the tax authority on behalf of its shareholders are also outside of the scope of ASC 740.

Is sales tax in scope of ASC 740?

The guidance in ASC 740 applies to taxes (and thus uncertain tax positions) that are “based on income.” It should not be applied by analogy to non-income-based taxes, such as sales taxes, value-added taxes, or property taxes.

Which of the following might be in the scope of ASC 740?

ASC 740 covers federal, foreign, state and local (including franchise) taxes based on income. Also covered are an enterprise’s domestic and foreign operations that are consolidated, combined, or accounted for by the equity method, and foreign enterprises that prepare financial statements in accordance with U.S. GAAP.

What does ASC stand for in accounting?

FASB Accounting Standards Codification
On July 1, the FASB Accounting Standards Codification (ASC) became the single source of authoritative U.S. accounting and reporting standards for nongovernmental entities, in addition to guidance issued by the SEC.

What is current tax expense?

The current tax expense is the amount of income tax a company will pay for the current year. It is calculated from current earnings and the current year’s permanent differences and temporary differences between the GAAP and income tax rules.