Question

Which of the following statements is correct with regard to IFRS and GAAP? (a) Under GAAP, all potential liabilities related to uncertain tax positions must be recognized. (b) The tax effects related to certain items are reported in equity under GAAP; under IFRS, the tax effects are charged or credited to income. (c) IFRS uses an affirmative judgment approach for deferred tax assets, whereas GAAP uses an impairment approach for deferred tax assets. (d) IFRS classifies deferred taxes based on the classification of the asset or liability to which it relates.

Short answer

Debit and Credit are the two-accounting principles using which the amounts of each transaction is recorded in the book of the company's accounts. Debit depicts the inflow of money, and Creditrepresents the outflow of cash.

Step-by-step solution

Option (c) IFRS uses an affirmative judgment approach for deferred tax assets, whereas GAAP uses an impairment approach for deferred tax assets. Is the correct answer.

Option c is the correct answer.

Reason

IFRS uses an affirmative approach for the deferred tax assets because the amount of deferred tax assets will be realized up to the amount probable. On the other hand, GAAP uses an impairment approach to recognize the deferred tax asset amount since it reduces the organization's valuation account. All portion of the deferred tax asset is not realized.