Chapter 8 — Income Taxes
ASC 740 provides guidance on accounting for income taxes and applies
to all entities (both domestic and foreign) within a reporting entity. The two
primary objectives of ASC 740 are to (1) “recognize the amount of taxes payable or
refundable for the current year” and (2) “recognize deferred tax liabilities and
assets for the future tax consequences of events that have been recognized in an
entity’s financial statements or tax returns.”
With respect to the second objective, a difference between the tax
basis of an asset or a liability and its reported amount in the statement of
financial position (i.e., its book basis), referred to as a temporary difference,
will generally result in the recognition of either a DTA or a DTL. DTAs are recorded
for temporary differences and carryforwards that will result in a decrease to taxes
payable in future years (sometimes referred to as tax benefits). DTLs, on the other
hand, are recorded for temporary differences that will result in an increase to
taxes payable in future years. There are income tax implications associated with
foreign currency transactions and the translation of foreign entities’ financial
statements. For additional guidance on these implications, see Chapter 9 of Deloitte’s
Roadmap Income Taxes.