What ASC 740 Really Means for Your Company — and What It Takes to Get the Tax Provision Right

I'm Patrick Pittman, a Tax Partner at Brown Edwards. I've worked with ASC 740 for over twenty years, with a mix of public accounting experience and time spent with corporate entities, including SEC entities, handling interim and annual tax provisions, consolidated tax returns, and multi-state complexities. Today at Brown Edwards, I help clients — both public and private — with their tax provision work and related tax returns, alongside many others here who bring that same depth of experience. In this post, I'll walk through what ASC 740 covers, how we approach it at Brown Edwards, and how a company can tell when it's time to bring in outside help.

What ASC 740 is, and why it matters

ASC 740 is the standard that governs accounting for income taxes. It covers the accounting for income tax expense within the profit and loss statement, all income tax related accounts on the balance sheet — current tax receivable or payable, as well as deferred income taxes.

When I talk with CFOs about why this matters to them, it usually comes down to two things. First, they're concerned with their effective tax rate — they want to know what portion of their earnings from operations is going toward paying tax. Second, they're concerned with cash taxes — what they're actually paying each year, and how that compares to the effective rate. It's a key metric for a company, public or private, and for public companies it directly impacts earnings per share, so it matters to shareholders.

The kind of firm we are

Brown Edwards is a regional firm, and we offer all the same services a Big Four or national firm offers. Our partners and staff have a wealth of expertise, including partners who formerly worked at national firms, so that experience carries over. In a nutshell, we can provide everything a Big Four or national firm can, but with the feel of a smaller firm — more accessible, not just at the staff level but all the way up to the engagement partner.

We're a full-service firm, and that shows up in the range of tax provision and traditional tax work we handle:

• Interim and annual tax provisions for both public and private company clients, along with the necessary footnote disclosures.
• Traditional tax return preparation, review, and consultation services.
• M&A transaction consultation services.
• Special one-off needs and tax research on specific topics.

That combination — technical depth on ASC 740 specifically, plus the full range of traditional tax services — is what I mean when I say we're equipped to handle a company's tax provision work end to end, whatever stage that company is at.

Signs the tax provision has outgrown the internal team

I get asked fairly often how a company knows it's reached this point. A few things I'd point to:

• If you're getting more questions or more scrutiny from your auditors on your ASC 740 work during an annual or interim audit, that's a primary indicator the work may be getting too big or too complex for internal staff.
• If your quarterly or annual close process is requiring more time and resources each period just to get the provision prepared and the disclosures formulated — and that time is ticking up and taking away from other areas — that's another sign.
• And if there's simply a lack of confidence in the area — you're not sure the work is technically correct or being done as efficiently as it could be — that's worth paying attention to as well.

What it costs to hire versus outsource

This depends on quite a few factors, so I wouldn't put exact numbers to it, but here's the general comparison I'd offer. In-house, you need to consider salary — for one person or several — but on top of that, benefits, health care, retirement, payroll taxes, and everything else that goes along with maintaining staff. Those costs really add up. Outsourcing the work, by comparison, runs on a more straightforward, a-la-carte fee arrangement — you pay for what you need, when you need it. Across the board, I'd say it's less expensive, and often much less expensive, to outsource the work versus maintaining it in-house.

Whether you lose control by outsourcing

This is a common concern, and the short answer is no. What we see is what you're going to see — the models we use, the inputs, the outputs, it's all accessible. It's typically something we walk through and review with you directly, and the auditors see it too, as much of it as you want them to see. We're transparent in everything we use and everything we produce.

That transparency is part of what makes the work "audit-ready." To me, that means what we provide can be handed directly to the auditors, ready to be reviewed and tested, with the confidence that it's foolproof, easy to review, and able to hold up to testing. We standardize our models and templates so they're uniform across all of our clients, and those same models and templates have consistently held up to audits by both regional and national firms. From my experience, our clients and their auditors have found our deliverables to be complete, accurate, and offer an easy-to-follow format.

Why this work is worth outsourcing well

There's consistent demand from companies trying to find good in-house resources for this work, and in my experience — and from what I see in job postings — it's a specialized skill set that's genuinely difficult to find. These are hard roles to fill. Having access to outside resources for this area can mean a lower cost, and sometimes a better experience, than trying to fill the role internally, since we're accessible and bring the technical expertise to help meet that need in a more cost-effective way. When you go with a firm like ours, you’re gaining access to not just one or a few individuals; rather, you have access to a pool of resources, experience, and expertise.