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A footnote refers to information provided by companies at the end of financial statements. The footnote provides a detailed explanation of items in the financial statements. This paper discusses a footnote of Tiffany & Co- accounting for income taxes of the company Form 10-K based on EDGAR website. The company's 10-K illustrates how income tax is accounted for in the income statement. The company operates globally thus the business is taxed in the US as well as various foreign jurisdictions. Additionally, the paper will analyze the importance of the footnote to the firm, specific aspects of the footnote and how the footnote has changed due to changes in financial accounting guidance.
The foot note-Accounting for income tax is essential for Tiffany & Co in that it provides important information and guidelines on how it has been accounted for. For instance, the firm utilizes the asset and liability strategy when accounting for income taxes. Expected deferred income taxes are accounted under assets while income taxes payable accounted under current liabilities. The tax income to be accounted for, is for a period between reporting of financial statements and tax filing of the existing asset and liability are expected to reverse are recognized using statutory tax rates. From the EDGAR website, the income taxes for Tiffany & Co. in the year 2017 is $213(Sec.gov. 2018). Thus, users of financial statements are aware of how the company deals with income taxes. The footnotes give an explanation of the methodology, valuation and calculation procedures of income tax. Additionally, the footnote gives the time period to be used in accounting for the income taxes.
Moreover, the footnote provides the required accounting policies, principles, and assumptions. Changes in accounting for the income tax are also revealed and how the company has reacted to the changes. Tiffany & Co considers all available evidence such as reversal of existing taxable differences, projected future taxable income, and tax planning strategies. The firm makes valuation adjustment of tax allowance a technique that reduces income taxes. The valuation allowance is recorded against some deferred taxes assets which relate to tax losses carried forward and temporary differences with no expected benefits. Some tax losses carried forward by the company have expiration dates while some do not expire. Due to changes in accounting concepts and standards, Tiffany & Co. takes into consideration alterations provided by financial bodies. Any tax legislative change is taken into account for the period the law is enacted.
Taking an example, in 2017 the US tax Cuts & Job Act was implemented in 22nd December 2017 and on the same date, the SEC offered a staff accounting Bulletin No. 118 underlining the new expectations on the use of US Generally Accepted Accounting Principles (GAAP). The 2017 Tax Act also required that tax rate for US statutory corporate be reduced from 35.0% to 21.0%. The rule was implemented as from 1st January 2018 (Sec.gov. 2018). In October 2016, financial Accounting Standards Board (FASB) required companies to recognize deferred and current income taxes for any intra-transfer of an asset to the point where the asset is sold to an outside part. The law was to be enacted from15th December 2017 thus, Tiffany considered the change in accounting for its income tax in the presiding year. Additionally, the amendments were to be applied in a modified way through cumulative earnings as from 1st February 2018. Deferred tax assets comprise of pension benefits, depreciation, inventory and unearned income. Deferred tax liabilities comprise of a foreign tax credit.
Conclusively, analysis of income taxes of Tiffany & Co from the firm's form 10-K report is essential for the company because it gives guidelines on how the company accounts for income taxes. The footnote helps potential investors while making their investment decisions. However, due to changes in accounting standards and concepts, the treatments and value if the income tax also changes.
Sec.gov. (2018). Document. [online] Available at: https://www.sec.gov/Archives/edgar/data/98246/000009824618000133/tif-2018131x10k.htm#s7E2896FEEDA952708681479DA06BC79F [Accessed 9 Apr. 2018].
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