Company XYZ calculated its current and deferred income tax provisions utilizing the current year income tax rates as listed below:

• Federal tax rate- 21 %

• State 1 tax rate- 7.2%

• State 1 apportionment factor- 40%

• State 2 tax rate- 4.8%

• State 2 apportionment factor- 55%

There are no other states that are relevant to the Company's provision for the current year.

You are auditing the current tax provision for the current year. What needs to be tested and documented and/or discussed with management as it

relates to these rates?

I) The federal income tax rate independently agreed to the appropriate IRS tax rate at IRS.gov.

II) The state income tax rates independently agreed to the relevant state taxing authorities' websites.

Ill) The state apportionment factors tested for accuracy based on state level taxable income.

IV) The state apportionment factors should total 100%. Thus, inquiries of management should be performed regarding remaining state income.

V) The rates utilized in the provision should be those expected in future years and thus test the appropriateness of management's assumption that current year rates project future year rates, including apportionment factors.

A. I, II, III, IV

B. I, II, Ill

C. I, II, III, IV, V

D. I, II

Answer rating: 100% (QA)

Option C In the above question Company XYZ calculated its current and deferred income tax pro... View the full answer