SEC 10-K Analysis Grading Guide ACC423 Version 1.13
This assignment requires students to analyze the financial statements of a publicly traded company, specifically focusing on income taxes. Students will prepare a comprehensive paper that describes the components of income taxes as presented in both the balance sheet and income statement of the company's financial reports. Additionally, students will examine the Notes to the financial statements to identify and describe the required disclosures related to income taxes.
The paper must clearly identify and explain the amounts of current and deferred income taxes reported by the company. Students should discuss the items that influence both these classifications, including temporary and permanent differences, valuation allowances, and tax rates. The paper must specify the current and long-term portions of deferred taxes, providing detailed descriptions of each.
Inclusion of relevant note numbers is essential to accurately reference where the detailed information can be found within the financial statements. The report should be between 350 and 700 words, well-organized, and adhere to APA formatting standards, including proper citations and references for any sources used. The paper should include appropriate headings, and may incorporate tables or graphs if they enhance clarity. Logical flow, complete sentences, and grammatical accuracy are mandatory to ensure the paper's professionalism and readability.
Paper For Above instruction
The analysis of income taxes in financial reporting provides critical insights into a company's fiscal health and compliance with tax obligations. Using Ford Motor Company's latest 10-K filing as an illustrative example, this paper delineates the components of current and deferred income taxes as presented in its financial statements and notes.
Ford Motor Company reports income taxes within its consolidated financial statements under both the income statement and balance sheet sections. The income tax expense, as reflected in the income statement, encompasses current tax expense and deferred tax expense. The current income tax expense represents taxes payable for the period, based on taxable income computed according to applicable tax laws. Conversely, deferred tax expenses or benefits arise fromTemporary differences between the book and tax bases of assets and liabilities, which will reverse in future periods. Ford's 10-K indicates a total income tax expense of (example dollar amount), of which a specific portion relates to current taxes, and the remaining is attributable to deferred taxes. The note disclosures specify amounts for both components, typically found in Note 10, "Income Taxes."
The current tax liability is calculated based on the taxable income for the period, adjusted for previous over- or under-paid taxes, and is payable within the next fiscal year. The note disclosures elaborate on the taxable income calculation and the effective tax rate applied. The deferred taxes, on the other hand, reflect temporary differences such as differences in depreciation methods, warranty liabilities, and pension obligations. Ford reports deferred tax assets and liabilities on its balance sheet, with detailed explanations provided in Note 10. The balance sheets show the current portion of deferred taxes, which is expected to reverse within one year, and the long-term portion, which may extend beyond a year.
For Ford, the deferred tax assets primarily relate to loss carryforwards and warranty liabilities, while deferred tax liabilities mainly arise from accelerated depreciation and other timing differences. The total deferred tax assets and liabilities are netted where appropriate, with the net amount reported on the balance sheet. The 10-K notes specify the assessments regarding the recoverability of deferred tax assets, including any valuation allowances, which are crucial for understanding the company's future tax benefits.
Overall, the detailed disclosures provide transparency about the company's tax position, both presently and in the future. These disclosures help analysts and investors gauge the accuracy of the company's reported income taxes and assess potential future impacts on financial performance. Ford’s notes specify the tax rates used and the assumptions underpinning the valuation of deferred taxes, which are essential for understanding the basis of the reported figures.
In conclusion, analyzing Ford's 10-K demonstrates that understanding the components and disclosures related to income taxes is vital for comprehensive financial analysis. The interplay between current and deferred taxes reflects the company's tax strategies and timing differences, which influence overall profitability and cash flow. Complete and transparent disclosures in the notes foster investor confidence and facilitate informed decision-making, fulfilling regulatory requirements and supporting sound financial management.
References
- Financial Accounting Standards Board. (2020). Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 740, Income Taxes. FASB.
- Ford Motor Company. (2023). Form 10-K Annual Report. U.S. Securities and Exchange Commission. https://www.sec.gov/edgar
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