When cleaning ETR, which is the recommended action?

When cleaning ETR, which is the recommended action?

• A. Reverse Out Non-Recurring Items and Recalc ETR
• B. Use Unrevised ETR
• C. Estimate ETR From Tax Expense Only
• D. Use Statutory Tax Rate Only

Answer: (A)

Cleaning the ETR means removing the impact of non-recurring items from both pretax income and tax expense, then recalculating the rate. This isolates the ongoing tax burden, giving a clearer view of the recurring tax rate and making comparisons across periods and peers more reliable. If you leave the one-time items in, the ETR can be distorted by those unusual items. Estimating the ETR from tax expense alone ignores how much pretax income drives that tax and can misstate the true rate, while using the statutory rate ignores a company’s specific tax planning and credits. So the best approach is to reverse out non-recurring items and recalculate the ETR.

Cleaning the ETR means removing the impact of non-recurring items from both pretax income and tax expense, then recalculating the rate. This isolates the ongoing tax burden, giving a clearer view of the recurring tax rate and making comparisons across periods and peers more reliable. If you leave the one-time items in, the ETR can be distorted by those unusual items. Estimating the ETR from tax expense alone ignores how much pretax income drives that tax and can misstate the true rate, while using the statutory rate ignores a company’s specific tax planning and credits. So the best approach is to reverse out non-recurring items and recalculate the ETR.