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Accounting For Deferred Taxes: Time For A Change.

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Date Issued:
2012-03-01
Abstract:
This study examines the theory underlying the current accounting and reporting standards for deferred taxes. Given the goal of global accounting convergence and under the proposed condorsement approach, the FASB and the IASB have a historic opportunity to revise the existing deferred tax accounting standards. Thus, it is warranted to illustrate the financial consequences of using the proposed flow-through (where tax expense is equal to the statutory tax liability) approach versus the asset-liability method of accounting for deferred taxes. We achieve this objective by computing the change in the debt-to-equity (DTE) ratios for the 2004-2010 period when net deferred tax balances are eliminated and corresponding adjustments are made in the total liability and stockholders equity balances. Based on our observations, we propose that the underlying issue in accounting for deferred taxes is the unit problem and argue that deferred taxes do not represent assets and liabilities as defined by accounting standards.
Title: Accounting For Deferred Taxes: Time For A Change.
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Name(s): Volkan, Ara, author
Rue, Joseph, author
Colley, Ron, author
Valencia, Adrian, author
Type of Resource: text
Genre: Article
Issuance: monographic
Date Issued: 2012-03-01
Extent: 1 online resource
Language(s): English
eng
Abstract: This study examines the theory underlying the current accounting and reporting standards for deferred taxes. Given the goal of global accounting convergence and under the proposed condorsement approach, the FASB and the IASB have a historic opportunity to revise the existing deferred tax accounting standards. Thus, it is warranted to illustrate the financial consequences of using the proposed flow-through (where tax expense is equal to the statutory tax liability) approach versus the asset-liability method of accounting for deferred taxes. We achieve this objective by computing the change in the debt-to-equity (DTE) ratios for the 2004-2010 period when net deferred tax balances are eliminated and corresponding adjustments are made in the total liability and stockholders equity balances. Based on our observations, we propose that the underlying issue in accounting for deferred taxes is the unit problem and argue that deferred taxes do not represent assets and liabilities as defined by accounting standards.
Identifier: fgcu_ir_000355 (IID), 10.19030/jber.v10i3.6873 (doi)
Note(s): The publisher's version of the article is available at https://doi.org/10.19030/jber.v10i3.6873
Subject(s): deferred taxes
flow-through
the Unit Problem
global convergence
Debt-to-equity ratio
Links: https://doi.org/10.19030/jber.v10i3.6873
Persistent Link to This Record: http://purl.flvc.org/fgcu/fd/fgcu_ir_000355
Use and Reproduction: Copyright held by author(s).
Use and Reproduction: http://rightsstatements.org/vocab/InC/1.0/
Host Institution: FGCU
Is Part Of: Journal of Business and Economics Research.

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