What it is
Income taxes are an accounting estimate with its own rules. The provision combines current tax from the return with deferred tax on temporary differences, a valuation allowance that depends on judgment about future income, and liabilities for uncertain positions. Entity-level taxes on pass-through entities add a state layer.
The program covers the current provision and return-to-provision true-up, the deferred tax rollforward and the tax basis balance sheet, valuation allowance evidence, uncertain tax positions, the rate reconciliation, state and nexus exposure, pass-through entity taxes and disclosures. Steps carry an assertion, sample-size note, W/P reference and sign-off.
When to use it
- Planning the income tax section of an audit of a C corporation, or a pass-through with entity-level taxes.
- When the entity has a valuation allowance, loss carryforwards or tax positions that could be challenged.
- To document how you use specialists and test the estimates.
What’s inside
- Current tax: the provision, return true-up and payable or receivable
- Deferred taxes: temporary differences, the tax basis balance sheet and valuation allowance
- Uncertain tax positions, the rate reconciliation and disclosures
- Tie-outs and general procedures
Standard cited
This template follows AU-C 330 / AU-C 540 / ASC 740. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use. See AU-C 330 explained, AU-C 540 explained.
Questions
What evidence supports a valuation allowance?
A valuation allowance is needed when it is more likely than not that some deferred tax assets will not be realized. Weigh positive and negative evidence: cumulative losses are significant negative evidence, while reversing taxable differences, tax planning strategies and a history of profit are positive evidence (ASC 740-10-30-17 to 30-23).
Do auditors prepare the provision?
An auditor who prepares the provision is performing a nonattest service and must evaluate independence under the AICPA Code (ET 1.295) and have management take responsibility. Say so in the engagement letter and keep the team separate where your policy requires.
Should a specialist be used?
Often. Complex positions, multistate exposure and uncertain tax positions can need a tax specialist. Evaluate the specialist’s competence, capability and objectivity and the specialist’s work (AU-C 620).
Related templates
- Audit Risk Assessment Worksheet (SAS 145)
- Summary of Uncorrected Misstatements (AU-C 450)
- Attorney Legal Letter Inquiry (AU-C 501 / ASC 450)
- Audit Planning Memo (AU-C 300)
Last updated 11/05/2026. All free templates.