Chapter 1

Knowledge check solutions

    1. Incorrect. These controls are a critical component of complying with the Sarbanes-Oxley Act.
    2. Correct. Controls surrounding the tax function are a critical component of compliance with the Sarbanes-Oxley Act.
    3. Incorrect. The Sarbanes-Oxley Act does apply to the tax function.
    4. Incorrect. FIN 48 has been codified in FASB ASC 740.
    1. Correct. One of the primary reasons given for issuing FASB ASC 740 was to reduce the complexity of accounting for deferred taxes.
    2. Incorrect. The issue of discounting DTAs and DTLs was not addressed by FASB ASC 740.
    3. Incorrect. FASB ASC 740 specifically precludes guidance on the basic methods of accounting for any investment tax credits.
    4. Incorrect. The tax code isn’t simplified in FASB ASC 740.
    1. Incorrect. Events that are recognized in the financial statements that do not have tax consequences are not addressed by FASB ASC 740. These have been known in practice as permanent differences.
    2. Incorrect. FASB ASC 740 does not address the issue where some items may be reported on the financial statements that will never be reported for tax purposes.
    3. Correct. FASB ASC 740 applies to temporary differences between events recognized for financial purposes in the current period that will affect taxable income in future periods.
    4. Incorrect. FASB ASC 740 focuses on temporary differences between financial statement presentation and tax return filings.
    1. Correct. Future taxable income will be more than book income, and ...

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