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CPA Review Report: Deferred Tax Method, Accounting Changes, Rationale for a Subsidiary

As the CPA for a large organization, your manager has asked you to provide information to outside CPAs who are examining a subsidiary that has been set up as a corporation. As part of their review, the CPAs have asked you to provide them with the following explanations:

The methodology used to determine deferred taxes
The procedures for reporting accounting changes and error corrections
The rationale behind establishing the subsidiary as a corporation

Prepare your response to the three questions. Before submitting your response, your manager would like to know a little bit more about the request. She has asked you to tell her what your professional responsibilities are as a CPA, and the difference between a review and an audit.

Provide draft responses to the above questions. Additionally, provide your manager with a summary of your responsibilities in an internal memo.

Solution Summary

The solution examines the deferred tax method for accounting changes.

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