Documenti di Didattica
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General
Temporary differences:
Disclosure
General
Permanent differences
Page 2
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.
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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.
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Primary pronouncements
US GAAP
IFRS
Page 5
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 will
not 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.
Accounting for income taxes
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General
US GAAP
IFRS
Similar
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.
Accounting for income taxes
Academic Resource Center
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Temporary differences
General
US GAAP
IFRS
Similar
Similar
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Temporary differences
General
US GAAP
IFRS
Similar
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Temporary differences
Deferred tax liabilities
US GAAP
IFRS
Similar
Similar
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Temporary differences
Deferred tax assets
US GAAP
IFRS
Similar
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Temporary differences
Deferred tax assets
US GAAP
IFRS
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$180,000
$120,000
$180,000
$120,000
IFRS:
Deferred tax asset
Income tax benefit
$60,000
$60,000
Accounting for income taxes
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Temporary differences
Tax rate considerations
US GAAP
IFRS
Similar
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Temporary differences
Tax rate considerations
US GAAP
IFRS
Prepare the journal entry under both US GAAP and IFRS to record KRBs
income tax expense and liabilities.
Accounting for income taxes
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Permanent differences
US GAAP
IFRS
Similar
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US GAAP
IFRS
Similar
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US GAAP
IFRS
Similar
Similar
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US GAAP
IFRS
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US GAAP
IFRS
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US GAAP
IFRS
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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-likelythan-not threshold.
Management also believes, if examined, it is likely it would settle for
less than the full amount of the entire position.
Accounting for income taxes
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Cumulative
probability of
occurring (%)
Individual probability
of occurring (%)
$100
25%
25%
$ 80
35%
60%
$ 60
25%
85%
$ 50
10%
95%
$ 40
5%
100%
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.
Accounting for income taxes
Academic Resource Center
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US GAAP
IFRS
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:
IFRS
US GAAP
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US GAAP
IFRS
Similar
Similar
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US GAAP
IFRS
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$30,000
$12,000
$30,000
$12,000
$12,000
$12,000
Accounting for income taxes
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$30,000
$12,000
$12,000
$12,000
$12,000
Accounting for income taxes
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US GAAP
IFRS
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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.
Accounting for income taxes
Academic Resource Center
Page 41
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.
Accounting for income taxes
Academic Resource Center
Page 42
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.
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Disclosures
US GAAP
IFRS
Similar
Page 44
Disclosures
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.
US GAAP
IFRS
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States.
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%.
Accounting for income taxes
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Country
United States
Taxable income
$ 1,450,000
35%
Country two
500,000
20%
Country three
600,000
25%
Total
Permanent differences
Book income
2,550,000
15,000
$2,565,000
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$897,750 (1)
(7,000) (2)
1,750 (3)
(135,000) (4)
$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)
Accounting for income taxes
Academic Resource Center
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$2,565,000 x 35%
(2)
$20,000 x 35%
(3)
$5,000 x 35%
(4)
(5)
(6)
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Disclosures
US GAAP
IFRS
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