Making Deferred Taxes Relevant

Arjan Brouwer, Ewout Naarding

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

We analyse the conceptual problems in current accounting for deferred taxes and provide solutions derived from the literature in order to make International Financial Reporting Standards (IFRS) deferred tax numbers value-relevant. In our view, the empirical results concerning the value relevance of deferred taxes should find their way into the accounting standard-setting process. We conclude that deferred taxes should only be recognised for temporary differences that will result in real future tax payments and/or tax receipts. Temporary differences for which the tax cash flow has already occurred have valuation implications for the underlying asset or liability and should, therefore, be accounted for based on the valuation adjustment approach. Furthermore, we conclude that partial allocation should replace comprehensive allocation in order to better align deferred taxes with expected future cash flows and thus increase their relevance and understandability. Finally, we conclude that deferred tax balances should be measured on a discounted basis to address time value.

LanguageEnglish
Pages200-230
Number of pages31
JournalAccounting in Europe
Volume15
Issue number2
DOIs
Publication statusPublished - 10 Apr 2018

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Deferred taxes
Tax
Cash flow
Empirical results
Make-to-order
International Financial Reporting Standards
Payment
Liability
Accounting standard setting
Assets
Value relevance

Keywords

  • book-first
  • deferred taxes
  • IFRS
  • tax-first

Cite this

Brouwer, Arjan ; Naarding, Ewout. / Making Deferred Taxes Relevant. In: Accounting in Europe. 2018 ; Vol. 15, No. 2. pp. 200-230.
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Making Deferred Taxes Relevant. / Brouwer, Arjan; Naarding, Ewout.

In: Accounting in Europe, Vol. 15, No. 2, 10.04.2018, p. 200-230.

Research output: Contribution to JournalArticleAcademicpeer-review

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