Tax Sophomore

What is it about tax provisions?

A tax provision is at first glance a simple concept: to account for both current and future tax effects that will occur as a result of historical company transactions. But in application, things can get strange and twisted. Welcome to this wild and seemingly dark realm lurking between the GAAP and tax worlds.

Provisions are best thought of like a messed up version of accounting Sudoku. Changing figures near the beginning of the process requires minimum rework. Change a figure near the end of the provision process and sometimes you may find starting from scratch easier than fixing a cascading river of adjustments resulting from one small change. That is, unless your provision is set up simply and you have a good working knowledge of how the provision system works.

It’s not uncommon for accountants both well versed in GAAP and familiar with preparing corporate tax returns to be utterly stumped by provisions. The main thing to keep in mind with provisions that it is first a process (much like drafting financial statements or preparing a tax return) and not just a product.

My hope is to provide guidance to make your journey through this half world an enjoyable excursion, or at least a less terrifying and painful one.