Tax rate reconciliation and income tax provision disclosure

August 26, 2019

Tax issues rank as one of the largest causes for financial restatements, and an analysis by PwC reveals that 22% of 2017 SEC income tax comment letters originated from the effective tax rate (ETR) reconciliation. Tax practitioners know the importance of the income tax disclosures—and the potential costs if a company is required to restate its financial statements because of a Topic 740 error—but many students enter the accounting profession without studying or preparing this important component of the financial statements.

This article explains current and deferred tax expense as a bridge to ultimately preparing the rate reconciliation, as well as showing how valuation allowances, tax credits and differences in tax rates across time affect the ETR.

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