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Hello, in this module we're going to talk about deferred taxes.
Deferred taxes, as we've discussed,
are sort of the intersection,
between financial reporting and tax.
It's a very important when you're doing this to get a team effort involved.
You usually need to have somebody involved that understands financial reporting,
that understands auditing, and understands the tax code.
In order to introduce this,
let's go talk to a team from Grant Thornton,
a global accounting firm, and they'll talk to us about that sort of interaction.
Hi, my name is Tim O'Connor.
I'm a managing director with the global accounting firm, Grant Thornton.
I'm also a University of Illinois graduate.
Hi, my name is Arlo Locke.
I'm an audit partner at Grant Thornton and University of Illinois alum.
I work primarily with
manufacturing type companies that are either SEC registrants or privately held.
Some of which are private equity owned,
and some of which are family owned.
I've been with the firm for 18 years and have really had
great experiences working with a lot of different dynamic companies in my career here.
Hello my name is John Huggleberg.
I'm a senior manager in the corporate tax group at Grant Thornton.
I work in the Chicago office,
and I specialize in corporate tax returns,
at deferred income taxes and provision related issues.
Hello, my name is Michael Enzi.
And I am a tax partner in the Chicago office of Grant Thornton.
I am also a University of Illinois alum.
My focus area at Grant Thornton is in the federal tax practice,
and more specifically in the consulting arm in the federal tax practice,
where we focus on bringing value added ideas to our clients,
to generate additional tax deductions,
tax credits, and deferral of income.
Hello, I'm Thatcher Smith.
I'm a managing director in the Chicago office of Grant Thornton.
I work in the tax reporting and advisory practice.
And I focus on financial statement accounting for income taxes.
So, let's talk a little bit about deferred taxes.
What's the interaction between the audit team and the tax department,
when you go in and plan your audit or perform your engagement?
Well, from an audit perspective,
I think that we really make the tax specialist part of the audit team,
and that really starts with the proposal process,
because we want to make sure that,
we're budgeting sufficient hours for the tax specialist to come in and assess,
because there's many different complexities to the tax provision.
It's not just the tax provisions,
there's the international pieces,
there could be transfer pricing,
there can be TIN for your considerations, and unusual deferred.
And so, we want to make sure that at the very beginning they are involved.
And then, at the planning stage of the audit,
they meet with us as part of our fraud brainstorming session.
To consider what are the changes to the business,
where are there the risks,
how do those risks and the business changes impact the tax provision,
and the tax specialists involvement in assessing those and auditing those risks.
And then, as we get into the fields work,
they come to the fields and work with us.
We work hand in hand,
and the tie out of the numbers,
and the tax specialist really then is able to focus primarily on
the specific detailed tax code provisions.
And the auditors get a better understanding of what that is.
So, it really is a mesh working together.
So, just because you specialize in audit,
doesn't mean that you don't need to understand taxes, you do.
But you still need these tech specialists that are here to
help make sure that we're getting everything right.
Because we would never have the depth of knowledge that they do in those areas.
Right. And we, as tech specialists we bring a certain expertise.
And we look at a deferred tax account,
and we can understand the conceptual integrity.
That the amount, it makes sense that there's a book tax difference.
But we work with the audit team to make sure that we can reconcile that
that cumulative number can be tied to supporting documentation.
I think that's what I've learned over the years is
really tying out to deferred as an important step,
because what it does is flushes out potential mistakes.
And in my experience, a lot of times if deferred taxes are incorrect,
it's because there's been a mistake in the returns,
and the returns get rolled.
That difference gets rolled into these balances,
and you have to step back and say what should this balance be?
In other words, you got to look at accumulated to deferred, and say,
what kind of support, for example depreciation,
you should be able to compare it to book basis and
assets versus tax basis and assets at year end.
But nine times out of ten,
it doesn't reconcile, there's usually some miscellaneous mistake.
But it's very important that we work together,
because we bring the conceptual integrity,
they bring the numeric integrity.
And together we can make sure that the numbers are correct.
And then on top of that, when you look at
the numbers and you haven't tied out from there correct.
We also have to understand, if there's any uncertainty within those figures.
And you have to identify and communicate back with the audit team,
what that uncertainty could be,
and so you can have a discussion around what the business activities are.
What level of uncertainty there is,
and how that layers in across the tax rules and regulations.
Now there's a lot of judgments still on the tax side. Yes.
John HeppClinical Assistant Professor of Accountancy
