Question

Briefly describe some of the similarities and differences between GAAP and IFRS with respect to income tax accounting.

Short answer

Both IFRS and GAAP use the asset and liability approach for recording deferred tax assets. As per the IFRS, tax consequence are reported under equity, whereas as per GAAP it is reported under income.

Step-by-step solution

Meaning of IFRS

International Financial Reporting Standards describes the set of rules and procedures for accounting.

Explaining the difference between GAAP and IFRS.

For documenting deferred tax assets, both IFRS and GAAP adopt an asset and liability method. In general, the variations between IFRS and GAAP include modest changes in asset-liability exceptions, slight differences in recognition, measurement, and disclosure standards, and differences in implementation guidelines. For comparison, here are a few crucial aspects.

1. Under IFRS, a deferred tax asset is recorded up to the likely amount to be realized using an affirmative judgment method. The GAAP uses the impairment techniques case; the deferred tax asset is realized entirely. If it is more likely that all or a portion of the deferred tax asset will not be realized, it is then lowered by a valuation account.
2. Under IFRS, tax implications on specific items are reflected in equity. Under GAAP, the tax consequences are charged or credited to income.
3. Companies must assess the possibility of uncertain tax positions being sustainable after an audit under GAAP. If the position is "more likely than not" to be prohibited, potential liabilities must be accumulated and declared. All possible liabilities must be recorded under IFRS. In terms of measurement, IFRS varies from GAAP in that it utilizes an anticipated value technique to calculate the tax liability.