Financial statements should reflect the current and deferred tax consequences of all events that have been recognized in the financial statements or tax returns (with the only exceptions identified in ASC 740-10-25-3, as discussed in TX 2.4). To accomplish this goal, the following basic principles were established:
  • A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current and prior years.
  • A deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carryforwards.
  • The measurement of current and deferred tax liabilities and assets is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated.
  • The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on all available evidence, are not expected to be realized.
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