hard · Financial Accounting accounting-cycle-financial-statements
When a tax rate change is enacted, ASC 740 requires the effect on deferred tax assets and liabilities to be recognized in income from continuing operations, even if the deferred tax was originally recorded in OCI.
What is the rationale for this?
- The IRS requires rate changes to be reflected in book income to ensure full parity.
- It is not; the effect must be allocated back to the original OCI component under this approach.
- OCI is a temporary account that is fully closed out to retained earnings at the end of every fiscal year.
- The tax provision for the current year is viewed as a single event related to the change in law.
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