Accounting is often called the language of business because it has its own specific terms with their specific meanings. Financial accounting is often the source of information and the real driving force behind corporate decision making. However, the world of income taxes is very different from the financial accounting world. This is mainly due to differences in the treatment of certain items, their timing, the recording of these items, and the application of different accounting rules in the two methods.
Organizations view income taxes as one part of overall decision making. Therefore, the manner in which tax consequences affect an income statement or balance sheet plays an important role in how tax decisions are ultimately made, and the accounting for taxes determines the actions taken by business enterprises.
For effective tax accounting, organizations need to:
- Recognize the financial accounting rules applicable to tax events and their consequences.
- Understand the basics of income taxes, including how they are affected by and the conflict they have with the financial accounting information.
- Identify common problem areas to reduce risks and minimize costs.
- Explore solutions to manage the operations of the organization as it operates, changes, and evolves over time.
Income tax events and reporting can differ significantly from how financial accounting works. Being able to identify common reporting issues and plan for and correctly address the differences between the two areas is an essential skill for those with exposure to the functions of finance, accounting, and financial reporting.
You may already speak the language of business, but can you translate that to the language of taxes? The Accenture Academy course Exploring Accounting for Income Tax Consequences serves as a starting point to understanding how income tax reporting translates to financial accounting and reporting, and vice versa. Once you take the first steps to learning this unique language, you will discover the opportunities that its knowledge can open up for you.