1. What other factors might be considered when valuing the deferred tax asset account?
Following are some factors that might be considered in evaluating the deferred tax asset amount that will be recognized.
• Evidence of sufficient future taxable income, exclusive of reversing temporary differences and carryforwards, to realize the benefit of the deferred tax asset.
• Evidence of sufficient future taxable income arising from the reversals of existing taxable temporary differences (deferred tax liabilities) to realize the benefit of the tax asset.
• Evidence of sufficient taxable income in prior year(s) available for realization of an operating loss carryback under existing statutory limitations.
• Evidence of the existence of practical, reasonable tax planning strategies under management control which, if implemented, would permit the realization of the tax asset. (Accounting Financial Tax).
2. As the accountant, is it your place to question management’s ability to turn a …show more content…
The valuation allowance is used to reduce the expected realizable value of the asset when there will not be adequate future taxable income for the realization of the deferred tax asset. The valuation allowance could become a problem when future profitability is in uncertainty. (Stice, 2014, p.16-2d). In this case, company is experiencing continued losses, but management interested in implementation of desired changes to report profit in the future however they were failed to do so in the past. The management assumptions about future earnings can have a huge impact on the financial statements. As an accountant I must advise them to follow the correct procedures. In a situation where a company is uncertain about future profit it can’t use the entire deferred tax benefits therefore it must have to create a valuation