The income-tax rate reconciliation explains why continuing-operations tax expense differs from tax at the domestic federal statutory rate. Build the amount reconciliation first, then divide each item by the same pretax denominator. The amount and percentage columns must tie to the provision.
Explain the difference by cause
ASC 740-10-50-12 requires a public entity to reconcile continuing-operations tax expense with the amount computed at domestic federal statutory rates, using percentages or dollar amounts.
On $1,000,000 pretax income, 21 percent statutory tax is $210,000. Tax-exempt interest, penalties, credits, state and foreign effects, valuation-allowance changes, enacted-rate changes, and uncertainty can bridge to reported expense. A $4,200 benefit is negative 0.42 percentage points on that denominator. Do not use cash paid, total tax allocated outside continuing operations, or unexplained other items as a plug. Retain source, jurisdiction, category, amount, rate effect, and owner for every line.
A closing check sums both amount and percentage columns and traces every named line to the provision or a controlled disclosure adjustment.
Put the concept to work
Analyze this concept
- Build the rate reconciliation from controlled provision drivers and apply the current ASU 2023-09 category and five-percent routing requirements.
Learning resources
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