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.