Question

Distinguish between the GAAP and IFRS treatment for accounting for income taxes.

Answer 1

The following are the key diffrences between GAAP and IFRS treatment for accounting for income taxes:

- Under US GAAP, classification of deferred tax assets and liabilities is split into current and non current components. Under IFRS, all deferred tax assets and liabilities are classified as non current.

- Under US GAAP, enacted tax rates are used for measuring deferred tax assets and liabilities. Under IFRS, enacted or " subtantially" enacted tax rates are used.

- Under US GAAP, tax expense from intercompany sales is deferred until the related asset is sold or disposed of. Under IFRSs, tax expense from intercompany sales is recognized immediately.

- Under US GAAP, deferred tax is not recognized on the remeasurement from local currency to foreign currency. Under IFRS, deferred tax is recognized on the remeasurement from local currency to functional currency.