The auditor is reviewing the current tax liability for a client in an industry where tax rates are anticipated to decrease because of near-certain Congressional action. In this case the auditor should:
A) recalculate the tax liability under the proposed rate.
B) recalculate the tax liability under both the current and proposed rate.
C) review the appropriateness of the tax liability assuming the current rate.
D) disclose the benefit of probable tax legislation on tax liability in the footnotes.

Question

Quizplus · Accepted Answer

The auditor should review the appropriateness of the tax liability assuming the current rate because accounting standards typically require the use of current laws and regulations in preparing financial statements, including tax calculations. Anticipated changes in tax laws, not yet enacted, should not be considered in the calculation of current tax liabilities.

The Auditor Is Reviewing the Current Tax Liability for a Client