Key Differences Between US GAAP and IFRS
There are many similarities with respect to income tax accounting under IFRS and US GAAP. There are, however, also many notable differences. For example, although both IFRS and US GAAP require a provision for deferred taxes, there are differences in…
Measurement of Current and Deferred Tax Items
Current taxes payable or recoverable are determined using the relevant tax rates at the balance sheet date. Deferred taxes, however, are measured at the tax rate that is expected to be applicable when the asset is realized or the liability…
Valuation Allowance for Deferred Tax Assets
US GAAP recognizes a deferred tax asset in full but reduces it by a valuation allowance if it is very likely that some or the entire deferred tax asset will not be realized. Valuation Allowance Deferred tax assets should be…
Temporary and Permanent Differences
Temporary differences occur whenever there is a difference between the tax base and the carrying amount of assets and liabilities on the balance sheet. Permanent differences are differences between the tax and financial reporting of revenue or expense items that…
Impact of Tax Rate Changes
Income tax rate changes can significantly impact a company’s financial statements and the financial ratios which are derived from them. It is important, therefore, for an analyst to take note of any proposed changes to tax laws that may inform…
Changes in the Income Tax Rate
Changes in the income tax rate can influence the measurement of income tax expense, the deferred tax asset and liability carrying amount in the year the change is enforced. When the income tax rate changes, deferred tax assets, and liabilities…
Tax Base of a Company’s Assets and Liabilities
An asset’s tax base is the amount that will be deductible for tax purposes in future periods once the economic benefits of the asset have been realized and a company can recover its carrying amount. If the economic benefit will…
Creation of Deferred Tax Liabilities and Assets
A deferred tax asset arises whenever a company’s taxable income is greater than its accounting profit. This variance results in an excess amount being paid for income taxes, which the company expects to recover in the course of future operations….
Differences Between Accounting Profit and Taxable Income
Accounting profit also referred to as income before taxes is reported on a company’s income statement following the prevailing accounting standards. Taxable income is the portion of a company’s income that is subject to income taxes following the tax laws…
