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Wild Swings in the Global Economy

24 Aug 2011

The last few weeks have been a wild ride for the global economy. Between the violent swings in the stock market, continuing high unemployment and mixed earnings results on Wall Street, a company's fortunes can change rapidly. With the continued uncertainty in the direction of the global economy, the spotlight remains on deferred tax assets reflected on corporate balance sheets and whether they will ultimately be realised. As the end of the third quarter starts to come into view Taxand US recommends that now is the time for your company to revisit its valuation allowance assessment.

Accounting for Income Taxes is a significant area of focus for companies, but the technical aspects of the valuation allowance rules can trip up even a best-in-class tax department. Taxand US looks at the following areas:

  • a review of the valuation allowance rules
  • a look at past results, a source of taxable income
  • future reversals of existing taxable temporary differences
  • taxable income in current years that be can be carried back to prior tax years
  • tax planning strategies
  • projections of taxable income.

Click here to read the full article from Taxand US.

Taxand's Take

The analysis and conclusions reached in evaluating the need for a valuation allowance are based on management's decisions and existing evidence (positive and negative), with objective evidence given the greatest weight. As the underlying sources of evidence change, tax departments need to monitor and update their assessments. This is especially true in situations where the evidence is narrowly supported in favour, either in support of an existing allowance or the existing need for no allowance. The third quarter is an excellent time for this assessment.

Waiting to address the valuation allowance assessment (or update the existing assessment) until the year-end provision may create additional work in an already busy time. Given the uncertainty about the direction of the global economy, the evidence that your company has used to support its valuation allowance decisions may be changing as well.

Your Taxand Contact for further queries is:
Robert Filip
T. +1 206 664 8910

Taxand's Take Author