Lucent Technologies Deferred Taxation
Executive Summary
This memorandum is intended to communicate the deferred tax issues of Lucent Technologies Inc. on the basis of analysis of the veracity of the situation according to the reporting framework’s guidelines to anticipate unfavorable implications that had been resulted due to poor performance of the company over the past years. The Financial Accounting Standards Board (FASB) is the recognized body for making pronouncements as Generally Accepted Accounting Principles (GAAPs) in the United States. The FASB has promulgated Statement of Financial Accounting Standard # 103 “Accounting for Income Taxes” which specifically prescribes the treatment of income taxes of corporate entities and guidance for how deferred taxes should be recorded either an asset or a liability in the financial statements. It also provides assistance in certain cases requiring a valuation allowance to be used to reduce the carrying value of any deferred tax asset for which it was “ more likely than not” that the asset would not be realized.
The main reason behind the issue is the impact of cut-throat competition in the telecom industry and downturn in the economic conditions which had adversely affected the company’s overall financial performance as a result deferred taxes amounting to $ 7.6 billion as of September 30, 2011 have been recognized against deductible temporary differences, operating losses and tax credit carry forwards. However, under the prevailing circumstances, it is apparent that the company will not be able to generate positive taxable income in the future periods to offset the losses. Accordingly, as per FAS # 109 the valuation allowance has to be reviewed against potential tax assets and for any items in which it is more probable through persuasive and reliable evidence that the asset will not reduce future taxable income
Analysis
Since after the inception of its operations in November 1995, the quality production and innovation were key business
This memorandum is intended to communicate the deferred tax issues of Lucent Technologies Inc. on the basis of analysis of the veracity of the situation according to the reporting framework’s guidelines to anticipate unfavorable implications that had been resulted due to poor performance of the company over the past years. The Financial Accounting Standards Board (FASB) is the recognized body for making pronouncements as Generally Accepted Accounting Principles (GAAPs) in the United States. The FASB has promulgated Statement of Financial Accounting Standard # 103 “Accounting for Income Taxes” which specifically prescribes the treatment of income taxes of corporate entities and guidance for how deferred taxes should be recorded either an asset or a liability in the financial statements. It also provides assistance in certain cases requiring a valuation allowance to be used to reduce the carrying value of any deferred tax asset for which it was “ more likely than not” that the asset would not be realized.
The main reason behind the issue is the impact of cut-throat competition in the telecom industry and downturn in the economic conditions which had adversely affected the company’s overall financial performance as a result deferred taxes amounting to $ 7.6 billion as of September 30, 2011 have been recognized against deductible temporary differences, operating losses and tax credit carry forwards. However, under the prevailing circumstances, it is apparent that the company will not be able to generate positive taxable income in the future periods to offset the losses. Accordingly, as per FAS # 109 the valuation allowance has to be reviewed against potential tax assets and for any items in which it is more probable through persuasive and reliable evidence that the asset will not reduce future taxable income
Analysis
Since after the inception of its operations in November 1995, the quality production and innovation were key business