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The income tax provision

Getting it right amid COVID-19

This thoughtware piece examines the key issues faced by companies preparing the income tax provision in a wholly or partially virtual environment, including operating in the current landscape, technical matters to be addressed, communicating with both stakeholders and auditors, regulators’ expectation for quality disclosures, and looking ahead as we move to a new normal.


After many months of operating in an economic environment reshaped by a global pandemic, companies continue to adjust to the impact on their business and their people. Finance and tax departments shifted gears swiftly to prepare (and timely file) financial statements while working from home when many states/countries issued stay-at-home orders. Even before the challenges of working remotely, Chief Tax Officers often faced difficulties getting the income tax provision right because of inherent tax accounting complexities. Income taxes have consistently been one of the top reasons for financial statement restatements and frequently cited as a cause for material weaknesses. The risk of getting the income tax provision wrong has been amplified not only by economic conditions, but also by disruptions to the traditional ways people do their work. Nevertheless, the accuracy of financial statements remains a priority, now balanced with unforeseen working environments. While no one could have imagined what has transpired in 2020, it is amazing how companies and successful leaders have responded to the challenges of COVID-19 to help their business and their people adapt.

In this thoughtware, we take a closer look at the issues impacting companies ability to “get the income tax provision right”; the critical importance of effective communications; and finally, what the “new normal” might look like.

Operating in the current landscape

  • Pressure on timelines
  • Working in a remote environment
  • Impact on internal controls

Technical matters

  • Forecasting
  • Realizability of deferred tax assets
  • Tax law changes and guidance
  • Uncertainties
  • Planning for cash

Communicating with stakeholders

  • C-Suite
  • Audit committees

Communication with external auditors

Regulator expectations

Moving to a new normal

Operating in the current landscape

Pressure on timelines

Given the calculation of the income tax provision starts with pre-tax earnings, there is often a compressed timeline for calculating the provision and preparing financial statement disclosures. Delays in finalizing pre-tax amounts put pressure on timelines since commitments to announce financial results to the market may have little or no flexibility to change. This can increase risks if the tax process is forced to absorb the delays. Meeting timelines may become even more difficult in a COVID-19 environment as people close the books virtually. Additional time will be needed to analyze new legislation, to calculate forecasts with many uncertain factors, and to work through issues, conclusions, and judgements with external auditors. Any one of these aspects could result in adjustments to pre-tax earnings and/or require further tax analysis and recalculations of the income tax provision.

Working in a remote environment

As organizations continue to address the impact of a global pandemic on the business, the workforce has adapted to working from home. Teams have developed and executed new processes that can be performed when some or all may be working remotely. Teams have learned to coordinate and connect with colleagues when not everyone is down the hall. They have recognized the challenge of balancing new household and family responsibilities with work responsibilities, and going forward it may require a new strategy in time management to complete time-sensitive tasks.

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