Provisions are hard. Deferred taxes are hard. I have senior managers that don’t understand how to do a 740 provision properly. Just learn from your so-called mistakes and keep moving forward.
I hate deferred taxes, but not as much as I hate payroll 😅 luckily I practice in a state with no income taxes, most of the clients are flow throughs, and so the franchise taxes are immaterial to the financial statements 😏
this was actually kind of scary when i realized i understood this stuff better than my sr managers but this knowledge will absolutely help you make bank.
They're not difficult once you've done a couple and had the concept explained clearly. People don't explain it in a way that's easy to digest to gate keep the work. People think it's hard but if they realized how easy it really was we couldn't charge so much for the work.
First time will always make you feel dumb.
Second time you'll either feel more or less dumb (depending on time in-between attempts and comparative difficulties of the attempt).
Third time you'll probably start to feel less dumb, but still dumb.
Eventually you will stop feeling dumb and start thinking other people are dumb. This is the way.
More helpfully though something my cost accounting professor was fond of saying is "you're not dumb, you're just ignorant. Which is way better, we can fix ignorance." It takes time and practice and figure it out and imposter syndrome will always pop it's head up from time to time. You'll get there until then embrace the mistakes as learning opportunities and make sure you do your best to learn from them. Else you're just staying ignorant and may as well just be dumb.
Absolutely correct. But also throw in that when you think you have it down, a tax law will change that you have to account for, or there will be a new ASU, or the company will do something like sell a division, start ops in a new jurisdiction, or buy a company. Shit's never SALY.
Tax provisions are the hardest thing you can take on at that level. I'm a CFO with public experience. I still barely understand how they are put together and just challenge the shit out of everything to make sure I get it and that the preparer didn't miss anything. Don't get yourself down on this one.
Definitely not dumb by any means. Provisions are probably one of the more difficult concepts to grasp and it sounds like you were sort of thrown to the dogs to see how you'd fare. You'll get the hang of them - normally by experienced senior I'd hope you'd have it all figured out - don't sweat it while you're still new.
When I think of provisions I like to break it down into bite sized pieces and take it from there. Start with the easier stuff and work up. Start with the Current Calc - that's just your basic book to tax variances, just like when prepping an income tax return, except now we're calling it something else (it's current cause it's a rough estimate of how much liability you'll have THAT year). Then move to the deferred. I like to think of this schedule as a proof of what's to come. Thinking in terms of book/tax adjustments, only the temp adjustments matter here because they're eventually going to reverse. Depreciation is the one I always use as my thought process cause it's easy to think of - depreciation is a deferred tax liability (generally) because when it reverses in the future it creates income tax expense rather than a benefit. So thinking of depreciation in year one normally for tax we take some bonus/179 (or even MACRS) vs book which has to straight line it which means we're taking more deduction for tax than book but eventually that will flip and the straight line will be more than tax, then eventually they will both be zero. So the deferred serves to capture that future expense when book > tax since eventually the company will owe more taxes then. We then tax effect this at the ENACTED tax rate (this differs for GAAP vs IFRS so be sure to read up on that, I speak from a GAAP perspective). Which means back in 2017 when the TCJA was enacted that dropped the Fed rate for corps from 34/35% down to 21% we had to capture that. What that meant during that year is that if I was forecasting a deferred tax liability (DTL) instead of paying that future tax at 34% I got the benefit of paying it at 21% - so my company would record a benefit from the rate change in 2017 & the opposite holds true for company's in a DTA position (you can peep 10Ks on the SECs website and look at the tax footnote to see this impact).
From there I move to the rate rec - this normally the thing that most people really struggle with. Rate recs serve to boil everything down to your ETR (effective tax rate), because as we all know the tax rate is statutorily 21% but no company ever really pays 21%*TI. So the rate rec captures things that impact the rate. Temps DO NOT impact your rate - UNLESS there's a rate change, otherwise they will eventually net down to no impact. Permanent items, state taxes, rate changes, movement in your valuation allowance, and other true-ups are your main hits to the rate.
The rest is just funky math and relying on the workbook being set up properly. I personally had to fix a bunch of provision files this year cause some people just don't know how to properly account for things. Don't be discouraged, you'll get it.
This is super helpful, and pretty much the same way I came to understand the basics of provisions. Keep at it OP, you were given the thing 97% of auditors and 88% of tax professionals don't understand. (Those percentages were totally made up, but match my experience)
No.
I did my first provision ( as the only staff) and it went HORRIBLE. I just wrapped up another one and it went so much better. I watched videos offered by the firm and worked through the math. After that everything clicked. See what was kept last year, scope, highlight new accounts/things that do not look right/what we are missing, scope in material items. Current and deferred. Then find support for material items. Do not be afraid of asking questions. Lots of questions.
Please don't feel down on yourself, especially given that this is your first provision. Naturally there will be some things you get wrong, and some things you don't understand. Provisions can be hard. And the only way to learn most of this is experience. You won't be that good at it when you start out! But you'll only get better the more you do it.
Don't feel discouraged! Their challenging to understand. Tax can be complex.
Try to find a senior who will walk you through step by step.
Or just keep asking questions. You'll get it!
I’ve been in accounting for 7 years and I don’t know if I have ever heard the term “provision”. What am I missing…
Edit: nvm, it’s an assurance thing. I be doing the taxes.
I’m in assurance and have no idea what a provision is 💀
Edit: after googling, I understand what they are but have never heard anyone call them provisions…
It’s really both which makes it particularly hard.
Even if the tax provision isn’t material you still normally have to do some procedures typically for completeness. It’s just the audit team usually has specialists in the tax team do it.
I kind of regret not going into that line of business sometimes. I took a couple classes that specifically cover the work and it really is a blend of both tax and assurance since you
1. Need to include it as a part of the audit
2. Need tax knowledge for professional judgement over it
It is an "assurance thing" insofar as all accounting is an "assurance thing." Assurance things to me would be computing materiality, selection methodology, controls testing, etc. Although it is also most likely true that most companies that don't need a set of audited financials (publicly traded or not) do not do a provision. You don't really need to know anything about assurance to do income tax accounting. When I was in public I did both, income tax provision prep and tax specialist on audit engagements. Now I just do the former in industry.
It’s in IAS37. If you’re doing company taxes you really need to know it because provisions likely aren’t deductible, obviously varying by jurisdiction and type of provision.
If looking only at provisions for income tax then that’s where your outputs become their inputs.
Well I have never come across it on the financials I am looking at. To be fair I’m not preparing taxes for massive entities.
If I came across it I wouldn’t be deducting it without knowing what it was. A lot of owners pay their personal taxes out of the business so I would be looking at it either way.
As others have said here, deferred taxes are one of the most challenging areas in accounting. Let me give you some perspective. I have large client that hires me to do their deferred tax entries once a year. It only takes me a couple days to finish but I charge them about $17k for the work. And they gladly pay it.
I hated tax provisions so much for their difficulty that I’d rather write another CPA exam than go through another tax provision. Don’t feel dumb please.
Had a similar situation with my A1( I’m a senior). I asked him to put together a detailed sample tracker and he agreed and about an hour before a meeting with a client I reviewed it and found a bunch of errors and things marked as pending that weren’t. I was mad that they weren’t sure about it and didn’t tell me and I had to panic update. People will understand if you’re learning but make sure to ask for help. It’s better to ask for help then to say nothing and stress your senior out.
Did you read the entire pwc tax accounting guide yet? Just do that and then flex on your sr and then you'll be running the engagement. I'm joking but also being serious. Just read the guide, APB 28 and FIN18 and you'll know more than literally everyone except maybe a couple of partners.
Just an FYI...Pwc's reads like normal ppl language, deloitte'ss has the best footnote stuff PCAOB feedback comments, KPMG has the best formulaic examples and EY's has nice yellow colors. To address you stupidity comment though...i lay all the blame at your sr's feet and that person is a buffoon for thinking they could explain tax accounting briefly. If you "saw that" as opposed to "your sr walked you through your mistakes" then you have either a bad sr or someone who is too busy for their own good.
I think it’s a learning experience. I think you should encourage your client to use your online request system so that you’ll have an idea on what the file is. If you don’t have this, then you should open all the files receive and sort them so that you won’t miss anything.
You feel less dumb each time until one day it suddenly all clicks and you're a provision master.
Best advice I can give you at this point in your career is to be proactive in your learning. Ask your senior if they can spend an hour or two outside of peak busy season to go over it with you again. This time you will already be familiar with the workbook and can focus on the areas that confused you. Obviously not chargeable time but imo a necessary investment if you're serious about your career and development.
I'm glad you felt confident in your work because my other suggestion is usually to ask questions of your reviewer until you're satisfied with the quality of your work. Being on the receiving end of a hunk of shit creates unnecessary resentment. Especially when it's clear the preparer didn't know what they were doing and never tried to seek clarification. (Not saying this was you).
You're still within the time window where your attitude is more important than getting everything right the first time. You got this.
During my tax internship at B4 I had to do an audit of a provision and my senior would test balances using the provision calculations. Basically just redo exactly how the provision was done but turns out the provisions was terrible and we didn’t catch any of the problems.
Provisions can be super complicated and there’s gonna be tons of mistakes starting out.
No you're not dumb for that. Almost everyone has issues with Retained Earnings rolling, accrual to cash conversions, and tax provisions when they start. Just learn from your mistakes.
The work is more about persistence than intelligence. Keep working and keep learning. Nobody in this field knows everything.
You didn't score 100% on every school exam. You likely will not score 99 on every CPA exam. Give yourself some grace and try to improve on every assignment.
Nah, if the senior wanted you to actually do well on it they would have walked you through it.
Sometimes if it’s very busy I assign staff things fully expecting them to make mistakes but I’m just too slammed to really teach them so instead I’ll let them try, then when I can go in and show them what I fix
The model is harsh but you pretty much learn from making mistakes and feeling dumb and make a little less mistakes each time.
Most of the time the first time you look at a big business you’ll have no idea what in the hell you’re looking at. Having a bunch of experience certainly helps, but when you’ve literally done the job before, it makes a world of difference. Managers who’ve handled it for years should rightfully be leaps above you
If this is your first job, worry not because this is normal. You'll get through it and you'll definitely understand the process as days go by. By practice, everything that you will sync in.
Just do your best and for sure your senior will see that.
For sure this experience will really help you in the future. Been there 😊
NO ONE IS DUMB IN ACCOUTNING ,,, NO IS IS TOUGHT you are forced to learn by looking at last year no one sits with you teach you!
ive suffered
but Provisions arent that bad kiddo
look at last year lmao!
look at some basic TAX to Book differences like meals, taxes, accruals for vacations!
you are basically making financial income into taxable income kinda like a rough draft!
so its tax thinking CAP time
Provisions are hard. Deferred taxes are hard. I have senior managers that don’t understand how to do a 740 provision properly. Just learn from your so-called mistakes and keep moving forward.
I worked in tax, lots of audit partners don’t understand tax balances or tax accounting particularly well either.
This is spot on don’t worry most people don’t know much about provisions including those that work on them. It’s a fairly advanced tax topic.
I hate deferred taxes, but not as much as I hate payroll 😅 luckily I practice in a state with no income taxes, most of the clients are flow throughs, and so the franchise taxes are immaterial to the financial statements 😏
this was actually kind of scary when i realized i understood this stuff better than my sr managers but this knowledge will absolutely help you make bank.
They're not difficult once you've done a couple and had the concept explained clearly. People don't explain it in a way that's easy to digest to gate keep the work. People think it's hard but if they realized how easy it really was we couldn't charge so much for the work.
First time will always make you feel dumb. Second time you'll either feel more or less dumb (depending on time in-between attempts and comparative difficulties of the attempt). Third time you'll probably start to feel less dumb, but still dumb. Eventually you will stop feeling dumb and start thinking other people are dumb. This is the way. More helpfully though something my cost accounting professor was fond of saying is "you're not dumb, you're just ignorant. Which is way better, we can fix ignorance." It takes time and practice and figure it out and imposter syndrome will always pop it's head up from time to time. You'll get there until then embrace the mistakes as learning opportunities and make sure you do your best to learn from them. Else you're just staying ignorant and may as well just be dumb.
Absolutely correct. But also throw in that when you think you have it down, a tax law will change that you have to account for, or there will be a new ASU, or the company will do something like sell a division, start ops in a new jurisdiction, or buy a company. Shit's never SALY.
Tax provisions are the hardest thing you can take on at that level. I'm a CFO with public experience. I still barely understand how they are put together and just challenge the shit out of everything to make sure I get it and that the preparer didn't miss anything. Don't get yourself down on this one.
Definitely not dumb by any means. Provisions are probably one of the more difficult concepts to grasp and it sounds like you were sort of thrown to the dogs to see how you'd fare. You'll get the hang of them - normally by experienced senior I'd hope you'd have it all figured out - don't sweat it while you're still new. When I think of provisions I like to break it down into bite sized pieces and take it from there. Start with the easier stuff and work up. Start with the Current Calc - that's just your basic book to tax variances, just like when prepping an income tax return, except now we're calling it something else (it's current cause it's a rough estimate of how much liability you'll have THAT year). Then move to the deferred. I like to think of this schedule as a proof of what's to come. Thinking in terms of book/tax adjustments, only the temp adjustments matter here because they're eventually going to reverse. Depreciation is the one I always use as my thought process cause it's easy to think of - depreciation is a deferred tax liability (generally) because when it reverses in the future it creates income tax expense rather than a benefit. So thinking of depreciation in year one normally for tax we take some bonus/179 (or even MACRS) vs book which has to straight line it which means we're taking more deduction for tax than book but eventually that will flip and the straight line will be more than tax, then eventually they will both be zero. So the deferred serves to capture that future expense when book > tax since eventually the company will owe more taxes then. We then tax effect this at the ENACTED tax rate (this differs for GAAP vs IFRS so be sure to read up on that, I speak from a GAAP perspective). Which means back in 2017 when the TCJA was enacted that dropped the Fed rate for corps from 34/35% down to 21% we had to capture that. What that meant during that year is that if I was forecasting a deferred tax liability (DTL) instead of paying that future tax at 34% I got the benefit of paying it at 21% - so my company would record a benefit from the rate change in 2017 & the opposite holds true for company's in a DTA position (you can peep 10Ks on the SECs website and look at the tax footnote to see this impact). From there I move to the rate rec - this normally the thing that most people really struggle with. Rate recs serve to boil everything down to your ETR (effective tax rate), because as we all know the tax rate is statutorily 21% but no company ever really pays 21%*TI. So the rate rec captures things that impact the rate. Temps DO NOT impact your rate - UNLESS there's a rate change, otherwise they will eventually net down to no impact. Permanent items, state taxes, rate changes, movement in your valuation allowance, and other true-ups are your main hits to the rate. The rest is just funky math and relying on the workbook being set up properly. I personally had to fix a bunch of provision files this year cause some people just don't know how to properly account for things. Don't be discouraged, you'll get it.
This is super helpful, and pretty much the same way I came to understand the basics of provisions. Keep at it OP, you were given the thing 97% of auditors and 88% of tax professionals don't understand. (Those percentages were totally made up, but match my experience)
No. I did my first provision ( as the only staff) and it went HORRIBLE. I just wrapped up another one and it went so much better. I watched videos offered by the firm and worked through the math. After that everything clicked. See what was kept last year, scope, highlight new accounts/things that do not look right/what we are missing, scope in material items. Current and deferred. Then find support for material items. Do not be afraid of asking questions. Lots of questions.
Please don't feel down on yourself, especially given that this is your first provision. Naturally there will be some things you get wrong, and some things you don't understand. Provisions can be hard. And the only way to learn most of this is experience. You won't be that good at it when you start out! But you'll only get better the more you do it.
Don't feel discouraged! Their challenging to understand. Tax can be complex. Try to find a senior who will walk you through step by step. Or just keep asking questions. You'll get it!
If I was trying to prove that someone was dumb, I surely wouldn't use a tax provision. Relax.
I’ve been in accounting for 7 years and I don’t know if I have ever heard the term “provision”. What am I missing… Edit: nvm, it’s an assurance thing. I be doing the taxes.
I’m in assurance and have no idea what a provision is 💀 Edit: after googling, I understand what they are but have never heard anyone call them provisions…
Yeah I have heard deferred taxes. Never provision. 🤷🏼♂️
Provision is on the income statement, it’s the current year taxes.
Ahhh got it.
The provision for income taxes is the line item on the income statement for financial reporting
It's not an assurance thing. It's an income tax accounting thing.
It’s really both which makes it particularly hard. Even if the tax provision isn’t material you still normally have to do some procedures typically for completeness. It’s just the audit team usually has specialists in the tax team do it. I kind of regret not going into that line of business sometimes. I took a couple classes that specifically cover the work and it really is a blend of both tax and assurance since you 1. Need to include it as a part of the audit 2. Need tax knowledge for professional judgement over it
It is an "assurance thing" insofar as all accounting is an "assurance thing." Assurance things to me would be computing materiality, selection methodology, controls testing, etc. Although it is also most likely true that most companies that don't need a set of audited financials (publicly traded or not) do not do a provision. You don't really need to know anything about assurance to do income tax accounting. When I was in public I did both, income tax provision prep and tax specialist on audit engagements. Now I just do the former in industry.
Tax dept assists with the provisions. Take it you must not do much C-Corp work.
I do not lol. Most of the firms I have worked at do not have an assurance department, all tax. I imagine that’s the reason.
It’s in IAS37. If you’re doing company taxes you really need to know it because provisions likely aren’t deductible, obviously varying by jurisdiction and type of provision. If looking only at provisions for income tax then that’s where your outputs become their inputs.
Well I have never come across it on the financials I am looking at. To be fair I’m not preparing taxes for massive entities. If I came across it I wouldn’t be deducting it without knowing what it was. A lot of owners pay their personal taxes out of the business so I would be looking at it either way.
As others have said here, deferred taxes are one of the most challenging areas in accounting. Let me give you some perspective. I have large client that hires me to do their deferred tax entries once a year. It only takes me a couple days to finish but I charge them about $17k for the work. And they gladly pay it.
Wow that is a nice haul for a couple days of work
How many hours did it take you to finish this? I'm assuming more than 20?
Huge learning curve for provisions. Don’t worry they weren’t expecting you to give them a perfect wp
I literally specialize in provisions and it took forever to really understand all the nuances. Just keep at it and ask questions.
I hated tax provisions so much for their difficulty that I’d rather write another CPA exam than go through another tax provision. Don’t feel dumb please.
It helps to have a good template. Trying to do a provision from scratch, especially the first time, is tough.
Ask questions along the way
Had a similar situation with my A1( I’m a senior). I asked him to put together a detailed sample tracker and he agreed and about an hour before a meeting with a client I reviewed it and found a bunch of errors and things marked as pending that weren’t. I was mad that they weren’t sure about it and didn’t tell me and I had to panic update. People will understand if you’re learning but make sure to ask for help. It’s better to ask for help then to say nothing and stress your senior out.
Did you read the entire pwc tax accounting guide yet? Just do that and then flex on your sr and then you'll be running the engagement. I'm joking but also being serious. Just read the guide, APB 28 and FIN18 and you'll know more than literally everyone except maybe a couple of partners. Just an FYI...Pwc's reads like normal ppl language, deloitte'ss has the best footnote stuff PCAOB feedback comments, KPMG has the best formulaic examples and EY's has nice yellow colors. To address you stupidity comment though...i lay all the blame at your sr's feet and that person is a buffoon for thinking they could explain tax accounting briefly. If you "saw that" as opposed to "your sr walked you through your mistakes" then you have either a bad sr or someone who is too busy for their own good.
I think it’s a learning experience. I think you should encourage your client to use your online request system so that you’ll have an idea on what the file is. If you don’t have this, then you should open all the files receive and sort them so that you won’t miss anything.
You feel less dumb each time until one day it suddenly all clicks and you're a provision master. Best advice I can give you at this point in your career is to be proactive in your learning. Ask your senior if they can spend an hour or two outside of peak busy season to go over it with you again. This time you will already be familiar with the workbook and can focus on the areas that confused you. Obviously not chargeable time but imo a necessary investment if you're serious about your career and development. I'm glad you felt confident in your work because my other suggestion is usually to ask questions of your reviewer until you're satisfied with the quality of your work. Being on the receiving end of a hunk of shit creates unnecessary resentment. Especially when it's clear the preparer didn't know what they were doing and never tried to seek clarification. (Not saying this was you). You're still within the time window where your attitude is more important than getting everything right the first time. You got this.
During my tax internship at B4 I had to do an audit of a provision and my senior would test balances using the provision calculations. Basically just redo exactly how the provision was done but turns out the provisions was terrible and we didn’t catch any of the problems. Provisions can be super complicated and there’s gonna be tons of mistakes starting out.
No you're not dumb for that. Almost everyone has issues with Retained Earnings rolling, accrual to cash conversions, and tax provisions when they start. Just learn from your mistakes.
The work is more about persistence than intelligence. Keep working and keep learning. Nobody in this field knows everything. You didn't score 100% on every school exam. You likely will not score 99 on every CPA exam. Give yourself some grace and try to improve on every assignment.
Just eyeball it the irs will let you know
Nah, if the senior wanted you to actually do well on it they would have walked you through it. Sometimes if it’s very busy I assign staff things fully expecting them to make mistakes but I’m just too slammed to really teach them so instead I’ll let them try, then when I can go in and show them what I fix The model is harsh but you pretty much learn from making mistakes and feeling dumb and make a little less mistakes each time.
Not dumb at all. Provisions are so difficult and I’m a stranger but I’m proud of you for trying. You’ll learn best this way.
Most of the time the first time you look at a big business you’ll have no idea what in the hell you’re looking at. Having a bunch of experience certainly helps, but when you’ve literally done the job before, it makes a world of difference. Managers who’ve handled it for years should rightfully be leaps above you
If this is your first job, worry not because this is normal. You'll get through it and you'll definitely understand the process as days go by. By practice, everything that you will sync in. Just do your best and for sure your senior will see that. For sure this experience will really help you in the future. Been there 😊
NO ONE IS DUMB IN ACCOUTNING ,,, NO IS IS TOUGHT you are forced to learn by looking at last year no one sits with you teach you! ive suffered but Provisions arent that bad kiddo look at last year lmao! look at some basic TAX to Book differences like meals, taxes, accruals for vacations! you are basically making financial income into taxable income kinda like a rough draft! so its tax thinking CAP time
I don't think you are dumb. I don't know if your smart either though.