LOS J requires us to:
identify the key provisions of and differences between income tax accounting under International Financial Reporting Standards (IFRS) and the US generally accepted accounting principles (GAAP).
The key differences in the tax accounting under the two financial reporting systems can be explained with the help of the following table:
Particulars |
IFRS |
U.S. GAAP |
Revaluation of fixed assets and intangible assets |
These are recognized in equity. |
Revaluation is not permitted under GAAP. |
Treatment of undistributed profits from investment in subsidiary |
These are recognized as deferred taxes if the parent is unable to control the distribution of profit and it is probable that temporary difference will not reverse in the future. |
For the domestic subsidiaries, the deferred taxes are not recognized if the amount is tax-free. |
Undistributed profit from an investment in an associate firm |
These are recognized as deferred taxes except if the parent is able to control the sharing of profit and it is probable that temporary difference will not reverse in the future. |
Deferred taxes are recognized from temporary differences. |
Undistributed profits from investment in a joint venture (JV) |
These are recognized as deferred taxes except if the parent is able to control the sharing of profit and it is probable that temporary difference will not reverse in the future. |
The deferred taxes are not recognized if there is an indefinite reversal criterion. |
Deferred Tax Asset Recognition |
It should be recognized if it is ‘probable’ that sufficient taxable profits will be available to recover the deferred asset. |
It should be recognized if it is ‘more likely than not’ that sufficient taxable profits will be available to recover the deferred asset. |
Tax rate to measure deferred taxes |
Enacted or substantively enacted rate. |
Enacted rate only. |
Presentation of deferred tax on the balance sheet |
Net value classified as non-current asset / liability. |
Classified as current or non-current based on classification of underlying asset or liability |
Offsetting of deferred tax assets and liabilities |
Allowed only if the entity has the right to enforce it and balance is related to the tax levied by the same authority. |
Same as IFRS. |