A new, instructional case which utilizes the KPMG Professional Judgment Framework to assist students, acting as auditors, in identifying the appropriate accounting treatment for two complex deferred tax issues. The case will ask students to use the Framework to estimate the amount of tax liability to be reported for an uncertain tax position and to estimate an appropriate allowance to reduce the deferred tax asset to its realizable value. The format of the case will provide the opportunity for students to practice exercising judgment in a structured manner, allowing them to logically think through the issues.

The fact pattern does not require extensive knowledge of tax law or GAAP surrounding deferred tax accounting, however, summaries of appropriate auditing and accounting literature will be provided to facilitate the use of the case in an auditing course. Due to the subjective nature of applying judgment, the instructor should be more concerned with how the students arrived at the estimates (i.e., how they used the framework) than with the actual answers provided.

Module Objectives 

1. Help students understand the importance of exercising high quality professional judgment;
2. Introduce students to the KPMG Professional Judgment Framework;
3. Provide students with an opportunity to apply the framework; and
4. Provide students with the opportunity to begin developing an appropriate mindset for making good judgments.

Module Learning Objectives

Critical analysis of case issues and application of the KPMG Professional Judgment Framework allow students to increase their:

1. Problem solving and decision making skills in an ambiguous learning environment;
2. Strategic/critical thinking as they consider the relevant issues of the case and make subjective decisions;
3. Ability to identify relevant risks associated with improper judgments; and
4. Understanding of ASC 740 and accounting for income taxes and how judgment impacts financial reporting.