Problems of Presenting Information about Deferred Taxes
( Pp. 176-191)
More about authors
Andrey A. Aksentev
Kuban State University; Perspektiva LLC
Krasnodar, Russian Federation; Russian Federation
Kuban State University; Perspektiva LLC
Krasnodar, Russian Federation; Russian Federation
Abstract:
Currently, accounting standards in the area of income tax accounting continue to be vague and unspecific. In this connection, this paper investigates the key aspects of the presentation of deferred tax information in accordance with the rules of modern accounting standards and theoretical provisions. The article describes the peculiarities of deferred tax classification in the balance sheet and the profit and loss statement. An attempt is made to explain the effect of restoration of deferred tax liabilities. The conclusion is made that in scientific literature the essence of income taxes still remains undisclosed and that because of this the developers of accounting standards are deprived of an opportunity to compile them adequately. The example of the use of provisions of IAS 12 «Income Taxes» in order to conceal important economic information is given. American and international experience in terms of indicating the sources of recovery of the value of deferred tax assets is compared. It has been defined that the Russian standard in the field of accounting of income taxes is not transparent in the part of representation of the information on deferred taxes. In the conclusion the directions of improvement of accounting legislation are presented.
How to Cite:
Aksentev A. A. Problems of Presenting Information about Deferred Taxes // ECONOMIC PROBLEMS AND LEGAL PRACTICE. 2023. Vol. 19. № 6. P. 176-191. (in Russ.) DOI: 10.33693/2541-8025-2023-19-6-176-191. EDN: RXUNTG
Reference list:
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Herbohn K., Tutticci I., Tan Z. The Market Response to Beating After-tax Earnings Targets Revisited using Analysts’ Pre-tax Earnings Forecasts and Concurrent Tax Note Disclosures // Journal of Business Finance & Accounting. 2016. Vol. 43. No. (1) & (2). Pp. 31–65. DOI: 10.1111/jbfa.12181.
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Plumlee M.A. The Effect of Information Complexity on Analysts’ Use of That Information // The Accounting Review. 2003. Vol. 78. No. 1. Pp. 275–296.
Amir E., Kirschenheiter M., Willard K. The Valuation of Deferred Taxes // Contemporary Accounting Research. 1997. Vol. 14. No. 4. Pp. 597–622. DOI: 10.1111/j.1911-3846.1997.tb00543.x.
Zeng T. The Valuation of Loss Carryforwards // Canadian Journal of Administrative Sciences / Revue Canadienne des Sciences de l'Administration. 2003. Vol. 20. No. 2. Pp. 166–176. DOI: 10.1111/j.1936-4490.2003.tb00701.x.
Rathke A.A.T., Rezende A.J., Antônio R.M., Moraes M.B.C. Last chance for a big bath: managing deferred taxes under IAS 12 in Brazilian listed firms // Revista Contabilidade & Finanças. 2019. Vol. 30. No. 80. Pp. 268–281. DOI: 10.1590/1808-057x201806340
Ettredge M., Sun L., Lee P., Anandarajan A. Is Earnings Fraud Associated with High Deferred Tax and/or Book Minus Tax Levels? // Auditing: A Journal of Practice & Theory. 2008. Vol. 27. No. 1. Pp. 1–33. DOI: 10.2308/aud.2008.27.1.1
Soliman W.S.M.K., Ali K.M. An investigation of the value relevance of deferred tax: the mediating effect of earnings management // Investment Management and Financial Innovations. 2020. Vol. 17. No. 1. Pp. 317–328. DOI: 10.21511/imfi.17(1).2020.27.
Herbohn K., Tutticci I., Khor P.S. Changes in Unrecognised Deferred Tax Accruals from Carry-Forward Losses: Earnings Management or Signalling? // Journal of Business Finance & Accounting. 2010. Vol. 37. No.7 & 8. Pp. 763–791. DOI: 10.1111/j.1468-5957.2010.02207.x.
Phillips J., Pincus M., Rego S.O., Wan H. Decomposing Changes in Deferred Tax Assets and Liabilities to Isolate Earnings Management Activities // Journal of the American Taxation Association. 2004. Vol. 26. No.1. Pp. 43–66. DOI: 10.2308/jata.2004.26.s-1.43.
Flagmeier V., Müller J. Tax Loss Carryforward Disclosure and Uncertainty // Arqus Discussion Paper, No. 208, Arbeitskreis Quantitative Steuerlehre (arqus), Berlin. 2016. DOI: 10.2139/ssrn.2982321.
Flagmeier V. The information content of tax loss carryforwards: IAS 12 vs. valuation allowance (Working Paper, No. 216). Arbeitskreis Quantitative Steuerlehre (arqus), Berlin. 2017. URL: http://www.arqus.info/mobile/paper/arqus_216.pdf (accessed: 19.10.2022).
Raedy J.S., Seidman J., Shackelford D.A. Is there Information in the Tax Footnote? // American Taxation Association Midyear Meeting Paper: JATA Conference, McCombs Research Paper Series No. ACC-01-11. 2011. DOI: 10.2139/ssrn.1759266.
Christensen T.E., Paik G.H., Stice E.K. Creating a Bigger Bath Using the Deferred Tax Valuation Allowance // Journal of Business Finance & Accounting, 2008. Vol. 35. No. 5-6. Pp. 601–625. DOI: 10.1111/j.1468-5957.2008.02092.x.
Bauman C.C., Bauman M.P., Halsey R.F. Do Firms Use the Deferred Tax Asset Valuation Allowance to Manage Earnings? // Journal of the American Taxation Association. 2001. Vol. 23. No. 1. Pp. 27–48. DOI: 10.2308/jata.2001.23.s-1.27.
Miller G.S., Skinner D.J. Determinants of the valuation allowance for deferred tax assets under SFAS No. 109 // The Accounting Review. 1998. Vol. 73. No. 2. Pp. 213–233.
Schrand C.M., Wong M.H. Earnings Management Using the Valuation Allowance for Deferred Tax Assets Under SFAS No. 109 // Contemporary Accounting Research. 2003. Vol. 20. No. 3. Pp. 579–611. DOI: 10.1506/480D-098U-607R-5D9W.
Aksent'ev A.A. Estimated reserve for deferred tax assets: the practice of creation and use // Herald of NGUEU. 2022. No. 3. Pp. 102–127 (in Russ.) DOI: 10.34020/2073-6495-2022-3-102-127.
Francis J. Discussion of Creating a Bigger Bath Using the Deferred Tax Valuation Allowance // Journal of Business Finance & Accounting. 2008. Vol. 35. No. (5) & (6). Pp. 626–632. DOI: 10.1111/j.1468-5957.2008.02086.x.
Bösser J., Pilhofer J. Deferred tax assets on tax loss carryforwards : Relevance of US «rules-based» accounting for «Principles-based» IFRS accounting? // KoR : internationale und kapitalmarktorientierte Rechnungslegung; IFRS, 2008. Vol. 8. Pp. 296–303. (in Germany) URL: https://research.owlit.de/document/1311d043-232f-3e4f-b0d9-bf3d2a0be67f (accessed 20.10.2022).
Axelson K.S. Accounting for Deferred Taxes // Financial Analysts Journal. 1966. Vol. 22. No. 5. Pp. 23–26.
Musazi B., Makkawi B. The controversy of deferred tax assets and liabilities classifications and some remedies // Journal of Finance and Accountancy. 2019. No. 25. URL: http://www.aabri.com/manuscripts/182968.pdf (accessed: 20.10.2022).
Bauman M.P., Shaw K.W. Balance sheet classification and the valuation of deferred taxes // Research in Accounting Regulation. 2016. Vol. 28. No. 2. Pp. 77–85. DOI: 10.1016/j.racreg.2016.09.004.
Legoria J., Sellers K.F. The analysis of SFAS No. 109’s usefulness in predicting future cash flows from a conceptual framework perspective // Research in Accounting Regulation. 2005, Vol. 18. Pp. 143–161. DOI: 10.1016/S1052-0457(05)18007-2.
Laux R.C. The Association between Deferred Tax Assets and Liabilities and Future Tax Payments // The Accounting Review. 2013. Vol. 88. No. 4. Pp. 1357–1383. DOI: 10.2308/accr-50417.
Chambers R.J. Tax Allocation and Financial Reporting // ABACUS. 1968. Vol. 4. No. 2. Pp. 99–123. DOI: 10.1111/j.1467-6281.1968.tb00412.x.
Ciconte W.A., Lisowsky P., Donohoe M.P., Mayberry M.A. Predictable Uncertainty: The Relation Between Unrecognized Tax Benefits and Future Income Tax Cash Outflows. 2016. DOI: 10.2139/ssrn.2390150.
Chludek A.K. On the Relation of Deferred Taxes and Tax Cash Flow (Working Paper). University of Cologne. 2011. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1778265 (accessed: 20.10.2022).
Chludek A.K. Perceived versus Actual Cash Flow Implications of Deferred Taxes—An Analysis of Value Relevance and Reversal under IFRS // Journal of International Accounting Research. 2011. Vol. 10. No. 1. Pp. 1–25. DOI: 10.2308/jiar.2011.10.1.1.
Foster B.P., Ward T.J. The incremental usefulness of income tax allocations in predicting one-year-ahead future cash flows // The Journal of Applied Business Research. 2007. Vol. 23. No. 4. Pp. 37–48. DOI: 10.19030/jabr.v23i4.1378.
Waugh J.B. The Interperiod Allocation of Corporate Income Taxes: A Proposal // The Accounting Review. 1968. Vol. 43. No. 3. Pp. 535–539. https://www.jstor.org/stable/244076
Kolchugin S.V. The economic essence of the income tax // International accounting. 2016. No. 22. Pp. 14–26 (in Russ.).
Black H.A. Interperiod allocation of corporate income taxes; Accounting research study no. 09. New York, AICPA, 1966. 123 p. URL: https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1154&context=aicpa_guides (accessed on 22.10.2022).
Sands J.E. Deferred Tax Credits are Liabilities // The Accounting Review. 1959. Vol. 34. No. 4. Pp. 584–590. URL: https://www.jstor.org/stable/241755.
Graham W.J. Income Tax Allocation // The Accounting Review. 1959. Vol. 34. No. 1. Pp. 14–27. URL: https://www.jstor.org/stable/241136 (accessed on 22.10.2022).
Barton A.D. Company Income Tax and Interperiod Allocation // ABACUS. 1970. Vol. 6. No. 1. Pp. 3–24. DOI: 10.1111/j.1467-6281.1970.tb00432.x.
Aksent'ev A.A. The impact of deferred taxes on the market value of Russian banks // International accounting. 2022. Vol. 25. No 9. Pp. 1033–1070 (in Russ.) DOI: 10.24891/ia.25.9.1033.
Noga T.J., Schnader A.L. Book-Tax Differences as an Indicator of Financial Distress // Accounting Horizons. 2013. Vol. 27. No. 3. Pp. 469–489. DOI: 10.2308/acch-50481.
Moore J.A., Xu L. Book-tax differences and costs of private debt // Advances in Accounting. 2018. Vol. 42. Pp. 70–82. DOI: 10.1016/j.adiac.2018.07.001.
Ayers B.C., Laplante S.K., McGuire S.T. Credit Ratings and Taxes: The Effect of Book/Tax Differences on Ratings Changes // Contemporary Accounting Research. 2010. Vol. 27. No. 2. Pp. 359–402. DOI: 10.1111/j.1911-3846.2010.01011.x.
Chytis E. Deferred Tax Assets from unused Tax Losses under the prism of Financial Crisis: Evidence from Greece. Conference: 1st International Conference on Business & Economics, Hellenic Open UniversityAt: Athens, Greece,2015. URL: https://www.researchgate.net/publication/285590463_Deferred_Tax_Assets_from_unused_Tax_Losses_under_the_prism_of_Financial_Crisis (accessed 27.10.2022).
Brouwer A., Naarding E. Making deferred taxes relevant // Accounting in Europe. 2018. Vol. 15. No. 2. Pp. 200–230. DOI: 10.1080/17449480.2018.1451903.
Kvaal E. Discussion of ‘Making Deferred Taxes Relevant’// Accounting in Europe. 2018. Vol. 15. No. 2. Pp. 231–241. DOI: 10.1080/17449480.2018.1473618.
Herbohn K., Tutticci I., Tan Z. The Market Response to Beating After-tax Earnings Targets Revisited using Analysts’ Pre-tax Earnings Forecasts and Concurrent Tax Note Disclosures // Journal of Business Finance & Accounting. 2016. Vol. 43. No. (1) & (2). Pp. 31–65. DOI: 10.1111/jbfa.12181.
Amir E., Sougiannis T. Analysts' Interpretation and Investors' Valuation of Tax Carryforwards // Contemporary Accounting Research.1999. Vol. 16. No. 1. Pp. 1–33. DOI: 10.1111/j.1911-3846.1999.tb00572.x.
Plumlee M.A. The Effect of Information Complexity on Analysts’ Use of That Information // The Accounting Review. 2003. Vol. 78. No. 1. Pp. 275–296.
Amir E., Kirschenheiter M., Willard K. The Valuation of Deferred Taxes // Contemporary Accounting Research. 1997. Vol. 14. No. 4. Pp. 597–622. DOI: 10.1111/j.1911-3846.1997.tb00543.x.
Zeng T. The Valuation of Loss Carryforwards // Canadian Journal of Administrative Sciences / Revue Canadienne des Sciences de l'Administration. 2003. Vol. 20. No. 2. Pp. 166–176. DOI: 10.1111/j.1936-4490.2003.tb00701.x.
Rathke A.A.T., Rezende A.J., Antônio R.M., Moraes M.B.C. Last chance for a big bath: managing deferred taxes under IAS 12 in Brazilian listed firms // Revista Contabilidade & Finanças. 2019. Vol. 30. No. 80. Pp. 268–281. DOI: 10.1590/1808-057x201806340
Ettredge M., Sun L., Lee P., Anandarajan A. Is Earnings Fraud Associated with High Deferred Tax and/or Book Minus Tax Levels? // Auditing: A Journal of Practice & Theory. 2008. Vol. 27. No. 1. Pp. 1–33. DOI: 10.2308/aud.2008.27.1.1
Soliman W.S.M.K., Ali K.M. An investigation of the value relevance of deferred tax: the mediating effect of earnings management // Investment Management and Financial Innovations. 2020. Vol. 17. No. 1. Pp. 317–328. DOI: 10.21511/imfi.17(1).2020.27.
Herbohn K., Tutticci I., Khor P.S. Changes in Unrecognised Deferred Tax Accruals from Carry-Forward Losses: Earnings Management or Signalling? // Journal of Business Finance & Accounting. 2010. Vol. 37. No.7 & 8. Pp. 763–791. DOI: 10.1111/j.1468-5957.2010.02207.x.
Phillips J., Pincus M., Rego S.O., Wan H. Decomposing Changes in Deferred Tax Assets and Liabilities to Isolate Earnings Management Activities // Journal of the American Taxation Association. 2004. Vol. 26. No.1. Pp. 43–66. DOI: 10.2308/jata.2004.26.s-1.43.
Flagmeier V., Müller J. Tax Loss Carryforward Disclosure and Uncertainty // Arqus Discussion Paper, No. 208, Arbeitskreis Quantitative Steuerlehre (arqus), Berlin. 2016. DOI: 10.2139/ssrn.2982321.
Flagmeier V. The information content of tax loss carryforwards: IAS 12 vs. valuation allowance (Working Paper, No. 216). Arbeitskreis Quantitative Steuerlehre (arqus), Berlin. 2017. URL: http://www.arqus.info/mobile/paper/arqus_216.pdf (accessed: 19.10.2022).
Raedy J.S., Seidman J., Shackelford D.A. Is there Information in the Tax Footnote? // American Taxation Association Midyear Meeting Paper: JATA Conference, McCombs Research Paper Series No. ACC-01-11. 2011. DOI: 10.2139/ssrn.1759266.
Christensen T.E., Paik G.H., Stice E.K. Creating a Bigger Bath Using the Deferred Tax Valuation Allowance // Journal of Business Finance & Accounting, 2008. Vol. 35. No. 5-6. Pp. 601–625. DOI: 10.1111/j.1468-5957.2008.02092.x.
Bauman C.C., Bauman M.P., Halsey R.F. Do Firms Use the Deferred Tax Asset Valuation Allowance to Manage Earnings? // Journal of the American Taxation Association. 2001. Vol. 23. No. 1. Pp. 27–48. DOI: 10.2308/jata.2001.23.s-1.27.
Miller G.S., Skinner D.J. Determinants of the valuation allowance for deferred tax assets under SFAS No. 109 // The Accounting Review. 1998. Vol. 73. No. 2. Pp. 213–233.
Schrand C.M., Wong M.H. Earnings Management Using the Valuation Allowance for Deferred Tax Assets Under SFAS No. 109 // Contemporary Accounting Research. 2003. Vol. 20. No. 3. Pp. 579–611. DOI: 10.1506/480D-098U-607R-5D9W.
Aksent'ev A.A. Estimated reserve for deferred tax assets: the practice of creation and use // Herald of NGUEU. 2022. No. 3. Pp. 102–127 (in Russ.) DOI: 10.34020/2073-6495-2022-3-102-127.
Francis J. Discussion of Creating a Bigger Bath Using the Deferred Tax Valuation Allowance // Journal of Business Finance & Accounting. 2008. Vol. 35. No. (5) & (6). Pp. 626–632. DOI: 10.1111/j.1468-5957.2008.02086.x.
Bösser J., Pilhofer J. Deferred tax assets on tax loss carryforwards : Relevance of US «rules-based» accounting for «Principles-based» IFRS accounting? // KoR : internationale und kapitalmarktorientierte Rechnungslegung; IFRS, 2008. Vol. 8. Pp. 296–303. (in Germany) URL: https://research.owlit.de/document/1311d043-232f-3e4f-b0d9-bf3d2a0be67f (accessed 20.10.2022).
Axelson K.S. Accounting for Deferred Taxes // Financial Analysts Journal. 1966. Vol. 22. No. 5. Pp. 23–26.
Musazi B., Makkawi B. The controversy of deferred tax assets and liabilities classifications and some remedies // Journal of Finance and Accountancy. 2019. No. 25. URL: http://www.aabri.com/manuscripts/182968.pdf (accessed: 20.10.2022).
Bauman M.P., Shaw K.W. Balance sheet classification and the valuation of deferred taxes // Research in Accounting Regulation. 2016. Vol. 28. No. 2. Pp. 77–85. DOI: 10.1016/j.racreg.2016.09.004.
Legoria J., Sellers K.F. The analysis of SFAS No. 109’s usefulness in predicting future cash flows from a conceptual framework perspective // Research in Accounting Regulation. 2005, Vol. 18. Pp. 143–161. DOI: 10.1016/S1052-0457(05)18007-2.
Laux R.C. The Association between Deferred Tax Assets and Liabilities and Future Tax Payments // The Accounting Review. 2013. Vol. 88. No. 4. Pp. 1357–1383. DOI: 10.2308/accr-50417.
Chambers R.J. Tax Allocation and Financial Reporting // ABACUS. 1968. Vol. 4. No. 2. Pp. 99–123. DOI: 10.1111/j.1467-6281.1968.tb00412.x.
Ciconte W.A., Lisowsky P., Donohoe M.P., Mayberry M.A. Predictable Uncertainty: The Relation Between Unrecognized Tax Benefits and Future Income Tax Cash Outflows. 2016. DOI: 10.2139/ssrn.2390150.
Chludek A.K. On the Relation of Deferred Taxes and Tax Cash Flow (Working Paper). University of Cologne. 2011. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1778265 (accessed: 20.10.2022).
Chludek A.K. Perceived versus Actual Cash Flow Implications of Deferred Taxes—An Analysis of Value Relevance and Reversal under IFRS // Journal of International Accounting Research. 2011. Vol. 10. No. 1. Pp. 1–25. DOI: 10.2308/jiar.2011.10.1.1.
Foster B.P., Ward T.J. The incremental usefulness of income tax allocations in predicting one-year-ahead future cash flows // The Journal of Applied Business Research. 2007. Vol. 23. No. 4. Pp. 37–48. DOI: 10.19030/jabr.v23i4.1378.
Waugh J.B. The Interperiod Allocation of Corporate Income Taxes: A Proposal // The Accounting Review. 1968. Vol. 43. No. 3. Pp. 535–539. https://www.jstor.org/stable/244076
Kolchugin S.V. The economic essence of the income tax // International accounting. 2016. No. 22. Pp. 14–26 (in Russ.).
Black H.A. Interperiod allocation of corporate income taxes; Accounting research study no. 09. New York, AICPA, 1966. 123 p. URL: https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1154&context=aicpa_guides (accessed on 22.10.2022).
Sands J.E. Deferred Tax Credits are Liabilities // The Accounting Review. 1959. Vol. 34. No. 4. Pp. 584–590. URL: https://www.jstor.org/stable/241755.
Graham W.J. Income Tax Allocation // The Accounting Review. 1959. Vol. 34. No. 1. Pp. 14–27. URL: https://www.jstor.org/stable/241136 (accessed on 22.10.2022).
Barton A.D. Company Income Tax and Interperiod Allocation // ABACUS. 1970. Vol. 6. No. 1. Pp. 3–24. DOI: 10.1111/j.1467-6281.1970.tb00432.x.
Aksent'ev A.A. The impact of deferred taxes on the market value of Russian banks // International accounting. 2022. Vol. 25. No 9. Pp. 1033–1070 (in Russ.) DOI: 10.24891/ia.25.9.1033.
Noga T.J., Schnader A.L. Book-Tax Differences as an Indicator of Financial Distress // Accounting Horizons. 2013. Vol. 27. No. 3. Pp. 469–489. DOI: 10.2308/acch-50481.
Moore J.A., Xu L. Book-tax differences and costs of private debt // Advances in Accounting. 2018. Vol. 42. Pp. 70–82. DOI: 10.1016/j.adiac.2018.07.001.
Ayers B.C., Laplante S.K., McGuire S.T. Credit Ratings and Taxes: The Effect of Book/Tax Differences on Ratings Changes // Contemporary Accounting Research. 2010. Vol. 27. No. 2. Pp. 359–402. DOI: 10.1111/j.1911-3846.2010.01011.x.
Chytis E. Deferred Tax Assets from unused Tax Losses under the prism of Financial Crisis: Evidence from Greece. Conference: 1st International Conference on Business & Economics, Hellenic Open UniversityAt: Athens, Greece,2015. URL: https://www.researchgate.net/publication/285590463_Deferred_Tax_Assets_from_unused_Tax_Losses_under_the_prism_of_Financial_Crisis (accessed 27.10.2022).
Brouwer A., Naarding E. Making deferred taxes relevant // Accounting in Europe. 2018. Vol. 15. No. 2. Pp. 200–230. DOI: 10.1080/17449480.2018.1451903.
Kvaal E. Discussion of ‘Making Deferred Taxes Relevant’// Accounting in Europe. 2018. Vol. 15. No. 2. Pp. 231–241. DOI: 10.1080/17449480.2018.1473618.
Keywords:
income tax; deferred taxes; temporary differences; timing differences; deferred taxation..
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