Cpa Memo

RUNNING HEAD: CPA MEMO

CPA Memo

Draft Responses to External CPA

1. The guidelines that we are currently using to determine deferred taxes are by recognizing a current tax liability or asset for the estimated taxes payable or refundable on the tax return for the current year. (2) Recognizing a deferred tax liability or asset for the estimated future tax effects attributable to temporary differences and carry forwards using the enacted tax rate. (3) Base the measurement of current and deferred tax liabilities and assets on provisions of the enacted tax law. (4) Reduce the measurement of deferred tax assets, if necessary, by the amount of any tax benefits that, based on available evidence, companies do not expect to realize (Kieso, Weygandt, Warfield, 2007). Each will produce temporary differences that are then carried over into future years and adjustments are made as needed.

2. Procedure that are currently in place for reporting accounting changes and errors are (1) first we identify the change in accordance to GAAP guidelines. (2) We follow the FASB framework that applies three types of accounting changes: accounting principles, accounting estimates and reporting entities. We also recognize changes to financial statements due to oversights, math errors or error in reporting. (3) After we determine the change or error we follow the FASB requirement of using the retrospective approach because it provides more information to compare data from different periods.

3. We have decided to establish the subsidiary as a corporation because it has many advantages to us within the organization. (1) We can now accept outside investors in return of stock of the company. (2) We may now consolidate our financial statements and work in our favor as our assets will grow. (3) Tax advantages become present since we are now a taxable entity.

MEMO

-------------------------------------------------

RE: CPA Responsibilities

Karen,

As we previously discussed on...