accounting for income taxes. academic resource center accounting for income taxes page 2 typical...

Accounting for income taxes

Academic Resource Center


Typical coverage of US GAAP

► General

► Temporary differences:

► General

► Deferred tax liabilities

► Deferred tax assets

► Tax rate considerations

► Permanent differences

► Net operating losses

► Uncertain tax positions

► Undistributed profits of foreign subsidiaries

► Financial statement presentation

► Disclosure



Executive summary

► Despite the similar approaches to accounting for taxation under IFRS and US GAAP, deferred taxation is one of the most common areas where differences arise. The reason is that a high proportion of transactions recognized in either the statement of income or balance sheet will have consequential effects on deferred taxes.

► US GAAP requires a two-step approach for deferred tax assets that involves first recognizing the full asset and then reducing the asset to the extent that it is more likely than not that the deferred tax assets will not be realized. The valuation allowance account is used for this. IFRS requires a one-step approach that provides for recognition of the deferred tax assets only to the extent it is probable that they will be realized. Although there is no valuation allowance account used under IFRS, there should not be any differences in the net asset under US GAAP versus IFRS.

► US GAAP contains extensive guidance on accounting for uncertain tax positions in ASC 740-10. IFRS does not currently include specific guidance on this issue.



Executive summary

► Both IFRS and US GAAP require a numerical reconciliation to explain the relationship between tax expense (income) and pretax accounting profit in the footnote disclosures. However, there are differences regarding the particular tax rate or rates to be used for preparing that reconciliation. US GAAP requires that the domestic federal statutory rate be used as the starting point whereas IFRS allows this approach and also allows a statutory rate that aggregates domestic rates in various jurisdictions to be used.

► IFRS classifies deferred tax assets and liabilities as noncurrent in a classified balance sheet while US GAAP classifies these items based on the classification of the related asset or liability, or for tax losses and credit carryforwards, based on the expected timing of realization. IFRS offsets deferred tax assets and liabilities when specific conditions are met which includes when an entity has a legally enforceable right to offset and when the taxes are levied by the same taxing authority for the same taxable entity. US GAAP offsets these balances and reports them net by current and noncurrent classification.



Primary pronouncements

US GAAP

► ASC740, Income Taxes

IFRS

► IAS 12, Income Taxes

► IAS 37, Provisions, Contingent Liabilities and Contingent Assets



Progress on convergence

► The IASB released an Exposure Draft (ED) of an IFRS to replace IAS 12 in March 2009. This was initially begun as a convergence project. However, the Board has now decided to perform a fundamental review of accounting for income taxes in the future. The Board has changed the project objective to resolve problems in practice under IAS 12.

► One of the primary areas that they will address is uncertain tax positions. However, they willnot do this until the revision of IAS 37, Provisions, Contingent Liabilities and Contingent Assets is finalized. An ED for a revised IAS 37 was released in January 2010 and the comment period ended in May 2010. Discussion on this project will not be resumed until after June 2011.►In December 2010, the IASB issued Deferred Tax: Recovery of Underlying Assets (amendments to IAS 12) concerning the determination of deferred tax on investment property measured at fair value. The amendments are to provide practical solutions for jurisdictions where entities currently find it difficult and subjective to determine the expected manner of recovery for investment property that is measured using the fair value model in IAS 40, Investment Property.



General

Takes an asset-liability approach to accounting for income taxes and thus records deferred tax assets and liabilities.

Similar

IFRSUS GAAP

Despite the similar approaches to accounting for taxation under US GAAP and IFRS, accounting for income taxes is one of the most common areas where differences arise between US GAAP and IFRS. The reason is that a high proportion of business transactions that do not have anything directly to do with income taxes will nonetheless have consequential effects on the accounting for income taxes.



Temporary differencesGeneral

A deferred tax liability or asset generally should be recognized for the future tax effects of all temporary differences and carryforwards.

Deferred taxes are calculated using the asset or liability approach, which is intended to recognize, in the balance sheet, the future tax consequences of events that have been either recognized in the financial statements or the tax return.

A temporary difference is the difference between the book and tax basis of an asset or liability multiplied by the appropriate tax rate.

IFRSUS GAAP

Similar

Similar



Temporary differencesGeneral

Deferred taxes are measured on an undiscounted basis. Similar

IFRSUS GAAP



Temporary differencesDeferred tax liabilities

A deferred tax liability is recorded if the book basis of the underlying asset (liability) is greater (less) than the tax basis of the underlying asset (liability).

Precludes recognition of a deferred tax liability for the excess of the book basis over the tax basis of goodwill if it arises at the initial recognition of goodwill.

Allows the recognition of a deferred tax liability subsequently if the goodwill is tax deductible.

IFRSUS GAAP

Similar

Similar



Temporary differencesDeferred tax assets

A deferred tax asset is recorded if the book basis of the underlying asset (liability) is less (greater) than the tax basis of the underlying asset (liability).

Similar

IFRSUS GAAP



Temporary differencesDeferred tax assets

IFRS

► Requires a one-step approach that provides for recognition of the deferred tax assets only to the extent it is probable that they will be realized.

► A difference should not result in determining the amount of net deferred tax assets to recognize since similar judgment should be applied under both standards in the determination of whether net deferred tax assets should be recognized and their amount.

► “Probable” is not defined in the IFRS income tax standard. Note that it is defined in IAS 37 as a likelihood greater than 50%.

US GAAP

► Requires a two-step approach for deferred tax assets.

► First, deferred taxes should be recognized in full for all temporary differences between the book and tax basis of assets and liabilities.

► Second, any net amount of a deferred tax asset is assessed to determine whether it should be reduced by a valuation allowance to the extent it is "more likely than not" * that the deferred tax asset will not be realized.

* “More likely than not” is defined as a likelihood of more than 50%.



Example 1

During the fiscal year ended December 31, 2010, KMR Corporation (KMR) experienced a net operating loss of $450,000. Since KMR has experienced losses in the last several years, it cannot utilize a net operating loss carryback. However, since KMR has entered into some new profitable contracts, the management of KMR expects that it is more than 50% likely that they will only be able to utilize one-third of the net operating loss to offset against future taxable income. The tax rate for KMR is 40%.

Valuation allowance example

► Show the journal entries for US GAAP and IFRS.



Example 1 solution:

US GAAP:

Deferred tax asset $180,000

Income tax benefit $180,000


Valuation allowance $120,000

IFRS:



Valuation allowance example



Temporary differencesTax rate considerations

Deferred tax liabilities and assets are measured using the applicable tax rate.

IFRSUS GAAP

Similar



Temporary differencesTax rate considerations

IFRS

► The enacted or "substantively enacted" tax rates and tax laws are used. For current taxes, the appropriate rate is determined considering when the amount is to be recovered or paid. For deferred taxes, the rate is determined considering when the asset or liability is expected to be realized or settled.► The interpretation of substantively enacted will vary from

country to country. To help make this assessment, the IASB has published guidelines that address the point in time when a tax law change is substantively enacted in many of the jurisdictions that apply IFRS.

US GAAP

► The enacted tax rate and tax law are applicable when measuring current and deferred taxes.



Example 2

KR Bookstores (KRB) operates in three countries in addition to the United States. The following table reports KRB’s taxable income and book income in these countries for the year ended December 31, 2010 (tax rates are also included in the table). All differences between book and taxable income are temporary differences that arise from assets and liabilities that are classified as current. Note that the substantively enacted tax rate is not a retroactive provision that will apply to the current year tax liability.

Enacted versus substantively enacted tax rates example

► Prepare the journal entry under both US GAAP and IFRS to record KRB’s income tax expense and liabilities.

Country

Taxable

income

Book

income

Temporary

difference

Enacted

tax rate

Substantively

enacted

tax rate

United States $1,450,000 $1,400,000 $50,000 35% 35%

Country one 400,000 350,000 50,000 40% 45%

Country two 500,000 550,000 (50,000) 20% 20%

Country three 600,000 750,000 (150,000) 25% 30%



Example 2 US GAAP solution:

Income tax expense $927,500

Current tax liability $917,500

Deferred tax liability – current*** 10,000

*The current tax liability is the taxable income multiplied by the enacted tax rates.

**The deferred tax asset or liability is the temporary difference multiplied by the enacted tax rate.

***The deferred tax liability is presented net and is classified as current as the assets and liabilities for which the temporary differences arise are classified as current.

Country

Taxable

income

Book

income

Temporary

difference

Enacted

tax rate

Current

tax

liability*

Deferred

tax asset

(liability)**

United States $1,450,000 $1,400,000 $50,000 35% $(507,500) $17,500

Country one 400,000 350,000 50,000 40% (160,000) 20,000

Country two 500,000 550,000 (50,000) 20% (100,000) (10,000)

Country three 600,000 750,000 (150,000) 25% (150,000) (37,500)

Total $(917,500) $(10,000)




Country

Taxable

income

Book

income

Temporary

difference

Enacted

tax rate

Substantively

enacted tax

rate

Current tax

liability*

Deferred

tax asset

(liability)*

United States $1,450,000 $1,400,000 $50,000 35% 35% $(507,500) $17,500

Country one 400,000 350,000 50,000 40% 45% (160,000) 22,500

Country two 500,000 550,000 (50,000) 20% 20% (100,000) (10,000)

Country three 600,000 750,000 (150,000) 25% 30% (150,000) (45,000)

Total $2,950,000 $3,050,000 $(917,500)

Example 2 IFRS solution:


Deferred tax asset – non-current*** 40,000

Current tax liability $917,500

Deferred tax liability – non-current*** 55,000

*The current tax liability is the taxable income multiplied by the enacted tax rates.

*The deferred tax asset or liability is the temporary difference multiplied by the substantively enacted tax rate.

***The total of the deferred tax assets ($17,500 + $22,500 = $40,000) and the total of the deferred tax liabilities ($10,000 + $45,000 = $55,000) are presented (no right of offset and differing tax jurisdictions) and classified as a non-current .




Permanent differences

If an item is included in the computation of taxable income but it is never included in book income, or if it is included in the computation of book income but never in taxable income, then it gives rise to a permanent difference.

Similar

IFRSUS GAAP



Net operating losses

An asset (tax receivable or deferred tax asset) and a tax benefit are recognized in the period that a company experiences a net operating loss that it will carry back or carry forward.

In the case of a deferred tax asset recognized in conjunction with a net operating loss carryback, the asset needs to be measured and, thus, might be reduced to zero if no future benefit is expected.

Similar

IFRSUS GAAP



Uncertain tax positions

Tax contingencies are reported as a liability on the balance sheet. Similar

IFRSUS GAAP

Both US GAAP and IFRS report tax contingencies as a liability on the balance sheet. A contingent liability is created for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was taken. An entity that presents a classified statement of financial position classifies a liability associated with an unrecognized tax benefit as a current liability, to the extent the enterprise anticipates payment (or receipt) of cash within one year or the operating cycle, if longer. The liability for unrecognized tax benefits should not be combined with deferred tax liabilities or assets.

Similar




IFRS

► Does not address uncertain tax positions. ► Under IAS 12, tax assets and liabilities should be

measured at the amount expected to be paid. In practice, this frequently results in the recognition principles in IAS 37, Provisions, Contingent Liabilities and Contingent Assets, being applied.

► IAS 12 clarifies that, while IAS 37 generally excludes income taxes from its scope, its principles may be relevant to tax-related contingent assets and contingent liabilities. This is not intended to imply that such items fall within the scope of IAS 37 because, ultimately, such assets and liabilities are a measurement of current tax.

US GAAP

► ASC 740-10 provides extensive guidance on accounting for uncertain tax positions. ► A two-step approach to uncertain tax positions – first

is the decision whether to recognize and second is the determination of the measurement.

► A benefit is recognized when it is more likely than not to be sustained based on the technical merits of the position. The amount of the benefit to be recognized is based on the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. Detection risk is precluded from being considered in the analysis by the assumption that the regulators have knowledge of all relevant facts and information.




IFRS

► Does not address uncertain tax positions (continued):

► IAS 37 requires that a provision should be recognized when:

► An entity has a present obligation as a result of a past event.

► It is probable that an outflow of resources will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation.

► If these conditions are not met, no provision should be recognized. For a position already taken on a return, the question then is whether the entity will be required to pay additional taxes in the future.

US GAAP




IFRS

► Does not address uncertain tax positions (continued):

► Practice varies regarding consideration of detection risk.

► IFRS guidance for recognition and measurement is resulting in mixed practice, much like the situation under US GAAP prior to FIN 48, now found in ASC 740. Some entities may apply principles in IAS 37 and some may not.

US GAAP



Example 3

Nicholas’ Basketballs Unlimited (NBU) is a company with a dual listing in Hong Kong and the United States, and thus is required to prepare its financial reports under IFRS and US GAAP, respectively. NBU is applying the standards related to uncertain tax positions found in ASC 740-10 for the second year (i.e., there are no transitional issues to consider) and is determining which amounts should be recognized for income tax purposes under both US GAAP and IFRS. NBU has taken an uncertain tax position on its return. Facts for this transaction are as follows:

Uncertain tax positions example

► The tax position that NBU has taken results in a benefit of $100.► There is limited information about how a taxing authority will view the

position. ► After considering the relevant information, management is confident

that the technical merits of the tax position exceed the more-likely-than-not threshold.

► Management also believes, if examined, it is likely it would settle for less than the full amount of the entire position.



Example 3 (continued):

Management believes that the amounts and the probabilities of the possible estimated outcomes are as follows:


► What tax benefit and what tax liability would NBU recognize in its financial statements related to this transaction under US GAAP and IFRS? Explain your answers.

Possible estimated outcome

(i.e., the amount that will be allowed as a deduction) Individual probability

of occurring (%)

Cumulative probability of occurring (%)

$100 25% 25%

$ 80 35% 60%

$ 60 25% 85%

$ 50 10% 95%

$ 40 5% 100%



Example 3 solution:

US GAAP:

NBU would measure the associated tax benefit at the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. The entity would recognize a tax benefit of $80 because this is the largest benefit with a cumulative probability of greater than 50%. Thus, the other $20 would remain a liability.




Example 3 solution (continued):

Current IFRS:

Under the current IAS 12, there is no explicit guidance on the method to use in determining the amount to be recognized. IAS 12, paragraph 46 requires NBU to recognize the amount expected to be paid. Given that the expectation of management is that the position will be supported but that it will settle for less than the full amount, it is likely that NBU would recognize some amount of benefit less than $100 and some amount of liability less than $100. But it is unclear what actual amounts would be recognized.

Additional considerations:

One of the key differences between US GAAP and IFRS is detection risk by the tax authority. ASC 740-10-25-7 requires a company to assume that the tax position will be discovered by the taxing authorities that have access to all the relevant facts and information. This requirement exists even if a company believes examination by the taxing authorities is remote. Detection risk is not specifically addressed in IFRS. It is a matter of management judgment and its expectation of detection of the tax position by the taxing authorities.




Undistributed profits in foreign subsidiaries

Undistributed earnings of foreign subsidiaries give rise to a temporary difference. However, an exception is made to this general rule if the earnings are reinvested in the subsidiary.

ASC 740-30-25-17 states:“The presumption that all undistributed earnings will be transferred to the parent company may be overcome, and no income taxes should be accrued by the parent company, if sufficient evidence shows that the subsidiary has invested or will invest the undistributed earnings indefinitely or that the earnings will be remitted in a tax-free liquidation.”

Similar – IAS 12, paragraph 39 states: “An entity shall recognize a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint ventures, except to the extent that both of the following conditions are satisfied: (a) the parent, investor or venturer is able to control the timing of the reversal of the temporary difference; and (b) it is probable that the temporary difference will not reverse in the foreseeable future.”

IFRSUS GAAP



IFRS

► Undistributed earnings must be reinvested for the “foreseeable future”.

► “Foreseeable future” is typically interpreted as a much shorter time period such as one year.

US GAAP

► Undistributed earnings must be reinvested in the foreign subsidiary “indefinitely”.

► “Indefinite” is typically interpreted as permanent.


While the general exception to the rule is the same for US GAAP and IFRS, the interpretation of the two standards typically differ in practice:



Example 4

FORSUB, Inc. is a fully-owned foreign subsidiary of USPAR Company. FORSUB operates in a jurisdiction with a tax rate of 20%. USPAR operates in a jurisdiction with a tax rate of 35%. FORSUB has earnings this year of $100 million and does not distribute this to USPAR. USPAR is able to control the timing of the future distribution and it is probable that FORSUB will not make a distribution to USPAR in the next 5 years.


USPAR and FORSUB do not have evidence that would indicate that the earnings will not be returned to USPAR after 5 years. They would like to report as little tax expense as possible.

►Provide the journal entries under both US GAAP and IFRS.



Example 4 solution:

US GAAP:

USPAR cannot take advantage of the exception to the general requirement that foreign undistributed earnings create a temporary difference. Thus, the tax-related journal entry would be:

Tax expense $35,000,000

Tax payable $20,000,000

Deferred tax liability 15,000,000

IFRS:

USPAR can take advantage of the exception since they are reinvesting the earnings for the “foreseeable future.” Thus, the tax-related journal entry would be:

Tax expense $20,000,000

Tax payable $20,000,000




Financial statement presentation

The total income tax expense reported on the statement of income is the sum of the current tax expense and the deferred tax expense. Both the current and deferred tax expenses do not include any tax expense that is recognized directly in equity.

Certain items may be accounted for directly in equity instead of going through the statement of income (e.g., excess tax benefits arising from stock compensation arrangements, available-for-sale investments and certain transactions with shareholders). The tax effects of those items also are recognized directly in equity in the period they arise.

IFRSUS GAAP

Similar

Similar




IFRS

► This effect is recognized directly through equity (this is referred to as backward tracing).

US GAAP

► The effect of tax rate changes and changes in the assessment of recoverability of deferred tax assets on items that were previously recognized in equity is recognized through net income.



Example 5

Bad Investments Incorporated (BII) holds equity investments at a cost basis of $250,000. It accounts for these investments as available-for-sale securities. At the end of 2010, the market value of these investments has declined to $220,000. Consequently, BII reports an unrealized loss for financial reporting purposes of $30,000 through OCI which creates a temporary tax difference.

As of December 31, 2010, BII determines that it is more likely than not that it will be able to deduct these capital losses for tax purposes if they are realized. As of December 31, 2011, BII changes its assessment as to whether it can utilize this deduction and determines that it is more likely than not that it will not be able to take the deduction for the capital loss. BII’s tax rate is 40%.

Backward tracing example

► Show the necessary journal entries for 2010 and 2011 under both US GAAP and IFRS.



Example 5 solution:

US GAAP:

The entry for 2010 is as follows:

Unrealized loss – OCI $30,000

Allowance to reduce AFS securities to market $30,000


Income tax expense – OCI $12,000



Valuation allowance $12,000





IFRS:


Unrealized loss – OCI $30,000

Allowance to reduce AFS securities to market $30,000









Financial statement presentationClassification and netting of deferred tax assets and liabilities

IFRS

► In a classified balance sheet, deferred tax assets and liabilities are only classified as non-current.

► Deferred tax assets and liabilities are offset when specific conditions are met which includes when an entity has a legally enforceable right to offset and when the taxes are levied by the same taxing authority for the same taxable entity.

US GAAP

► In a classified balance sheet, deferred tax assets and liabilities are generally classified based on the classification of the related asset or liability, or for tax losses and credit carryforwards, based on the expected timing of realization.

► The net deferred current tax amount is reported on the face of the balance sheet and the net deferred non-current tax amount is reported on the face of the balance sheet.



Classification and netting of deferred tax assets and liabilities example

FFC has the legal right of offset for the deferred tax assets and liabilities applicable to the US taxing jurisdiction. ►Provide the financial presentation for the deferred tax assets and liabilities for FFI under US GAAP and IFRS.

Description Amount

Taxing

jurisdiction

Deferred tax asset for allowance for doubtful accounts on its

accounts receivable $ 30,000 US

Deferred tax liability for depreciation on PPE (10,000) US

Deferred tax liability for pre-paid rent (25,000) Foreign A

Deferred tax asset for a litigation accrual expected to be paid

in 2 years 42,000 Foreign B

Example 6Fun Flowers Consolidated (FFC), has the following deferred tax assets and liabilities:



Example 6 US GAAP solution:

Under US GAAP, deferred tax assets and liabilities are generally classified based on the classification of the related asset or liability, or for tax losses and credit carryforwards, based on the expected timing of realization. Additionally, the balances determined as current are offset and the balances determined as non-current are offset. Therefore, for FFC, a $5,000 current deferred tax asset is reported and a $32,000 non-current deferred tax asset is also reported.


Description Amount Classification Netting

Deferred tax asset for allowance for doubtful accounts on its accounts receivable $30,000 Current Yes

Deferred tax liability for depreciation on PPE (10,000) Non-current Yes

Deferred tax liability for pre-paid rent for store facilities

(25,000) Current Yes

Deferred tax asset for a litigation accrual expected to be paid in 2 years 42,000 Non-current Yes



Example 6 IFRS solution:

Under IFRS, deferred tax assets and liabilities are only classified as noncurrent and are offset when specific conditions are met which includes when an entity has a legally enforceable right to offset and when the taxes are levied by the same taxing authority for the same taxable entity. Therefore, for FFC, a $62,000 non-current deferred tax asset is reported and a $25,000 non-current deferred tax liability.


Description

Amount Classification Taxing

jurisdiction Netting

Deferred tax asset for allowance for doubtful accounts on its accounts receivable $30,000 Current US Yes

Deferred tax liability for depreciation on PPE (10,000) Non-current US Yes

Deferred tax liability for pre-paid rent for store facilities

(25,000) Current Foreign A No

Deferred tax asset for a litigation accrual expected to be paid in 2 years 42,000 Non-current Foreign B No



Disclosures

Requires disclosure of:

► The components of the deferred tax liabilities and deferred tax assets.

► The components of tax expense.

► The amounts and expiration dates of operating loss and tax credit carryforwards for which tax benefits have not been recognized.

► The amounts of temporary differences that aren’t recorded due to the permanent reinvestment of undistributed foreign earnings.

Similar

IFRSUS GAAP



Disclosures

IFRS

► IAS 12, paragraph 85, states that: “Often, the most meaningful rate is the domestic rate of tax in the country in which the enterprise is domiciled, aggregating the tax rate applied for national taxes with the rates applied for any local taxes which are computed on a substantially similar level of taxable profit (tax loss). However, for an enterprise operating in several jurisdictions, it may be more meaningful to aggregate separate reconciliations prepared using the domestic rate in each individual jurisdiction."

US GAAP

► ASC 740-10-50-12 requires use of "domestic federal statutory tax rates" based on the premise that those rates provide the most meaningful information for domestic users of an enterprise's financial statements. An aggregation of separate reconciliations using foreign tax rates is not permitted.

Both US GAAP and IFRS require a numerical reconciliation to explain the relationship between tax expense (income) and pretax accounting profit. However, there are differences regarding the particular tax rate or rates to be used for preparing that reconciliation.



Example 6

KR Bookstores (KRB) operates in two countries in addition to the United States. The following table reports KRB’s taxable income and the applicable tax rate in these countries for the year ended December 31, 2010. KRB does not have any temporary book-to-tax differences. It has two permanent differences:

1. Non-taxable municipal bond interest of $20,000 in the United States.

2. Non-deductible expenses of $5,000 in the United States.

See the chart on the following slide for more information.

Rate reconciliation example

► Prepare the portion of the income tax footnote that details the rate reconciliation under both US GAAP and IFRS. Assume that KRB uses an aggregated statutory rate for IFRS purposes. Also assume that KRB declares the earnings from the foreign countries to be permanently reinvested. Thus, they will record tax expense related to foreign income at the lower tax rates of 20% and 25%.




Country Taxable income Applicable tax rate

United States $ 1,450,000 35%

Country two 500,000 20%

Country three 600,000 25%

Total 2,550,000

Permanent differences 15,000

Book income $2,565,000

Example 6 (continued):



Example 6 solution:

US GAAP:

US federal tax, based on statutory rate $897,750 (1)

Municipal bond interest (7,000) (2)

Non-deductible expenses 1,750 (3)

Foreign tax rate differential (135,000) (4)

Total income tax expense $757,500 (5)

IFRS:

Income tax based on aggregate statutory rate$762,750 (6)

Municipal bond interest (7,000) (2)

Non-deductible expenses 1,750 (3)

Total income tax expense $757,500 (5)





(1) $2,565,000 x 35%

(2) $20,000 x 35%

(3) $5,000 x 35%

(4) (($500,000 x (20% - 30%) – ($600,000 x (25% - 35%))

(5) ($1,450,000 x 35%) + ($500,000 x 20%) + ($600,000 x 25%)

(6) (($1,450,000 + $15,000) x 35%) + ($500,000 x 20%) + ($600,000 x 25%)




Disclosures

IFRS

► Requires, in certain circumstances, disclosure of "the nature of the evidence" supporting recognition of certain deferred tax assets. Scheduling the future reversals of temporary differences and carryforwards often will be necessary to develop the information required to comply with that disclosure requirement.

► Also requires considerable disclosures regarding unrecognized tax benefits. The requirements are found in IAS 37, paragraphs 84 through 92.

US GAAP

► Does not have this requirement.

► Requires considerable disclosures regarding any unrecognized tax benefits. The specific requirements vary from those under IFRS. The requirements for US GAAP can be found in paragraphs 15 and 15A of ASC 740-10-50.



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