1 Introduction
In a global economy there is a need for common accounting rules. It is simply important for an enterprise to know that national and international stock exchange rules require the application of internationally accepted accounting directives. So there are several good reasons for a trend towards internationalization. For an investor means internationaliza-tion usually accompanied by a standardization of accounting rules that he can compare financial statements quicker and easier. There are no longer time- consuming and ex-pensive conversions of financial statements necessary. Internalization means also that the national differences in the determination of profit will disappear. Standardization would give the term “profit” substance and would allow the comparison of financial statements of different enterprises from several countries.
In the European Union enterprises have a special responsibility since 2005. On the 12th of March 2002 the European Parliament endorsed the EC Commission’s proposal that all EU listed companies must follow standards issued by the International Accounting Standards Board (IASB) in their consolidated financial statements starting no later than 2005.
In this assignment I want to give a short overview about what the main principles of the International Financial Accounting Principles (IFRS) are all about and what differences to the German Statutory Accounting Rules (HGB) can be distinguished (chapter 2). Then I want to focus on the accounting of deferred taxes under IFRS (chapter 3). After a definition of deferral I want to explain the concepts and methods of deferral in this part. Finally I will have a closer look on deferred tax assets and deferred tax liabilities.
Table of Contents
1 Introduction
2 International Financial Reporting Standards
2.1 Main objects and principles of the International Financial Reporting Standard
2.2 Differences to the German Statutory Accounting Rules (HGB)
3 Accounting of Deferred Taxes under IFRS
3.1 Definition and function of deferred taxes
3.2 Concept of Deferral
3.3 Methods of Deferral
3.4 Deferred Taxes Assets and Deferred Taxes Liabilities
4 Conclusion
5 Literature
Objectives and Topics
This work provides an overview of the fundamental accounting principles defined by the International Financial Reporting Standards (IFRS) and examines the treatment of deferred taxes, contrasting international practices with the German Statutory Accounting Rules (HGB).
- Internationalization of accounting standards and the role of the IASB.
- Core principles and qualitative characteristics of financial reporting.
- Conceptual framework for deferred taxes under IAS 12.
- Analysis of temporary versus timing concepts in tax deferral.
- Recognition and measurement of deferred tax assets and liabilities.
Excerpt from the book
3.1 Definition and function of deferred taxes
At first I want to define the elementary terminology. The word deferred means: “existent, but not yet incurred” (Lohse, Woitowicz and Szabo 2007). Deferred taxes are therefore taxes which result from financial accounting but are not yet incurred under tax accounting legislation (Haufe 2009). Transactions may be treated differently in the financial statement and in the tax account. So a true and fair view isn’t possible. There is no coherent and explicable link between taxes that are reported in the income statement and the published financial result before taxes (Lohse, Woitowicz and Szabo 2007, S. 4). That’s why deferred taxes have to be reported in order to match tax expenses with the financial result of operations.
Deferred taxes are part of the income taxes and regulated in the International Accounting Standard 12 (Income Taxes)7. This Standard also deals with the recognition of deferred tax assets arising from unused tax losses or unused tax credits, the presentation of income taxes in the financial statements and the disclosure of information relating to income taxes (IAS 12).
Summary of Chapters
1 Introduction: This chapter outlines the global necessity for standardized accounting rules and sets the scope for comparing IFRS with German HGB while focusing on deferred taxes.
2 International Financial Reporting Standards: This section explores the core objectives of the IASB, including qualitative characteristics and underlying assumptions, while highlighting key differences to the German HGB.
3 Accounting of Deferred Taxes under IFRS: This chapter details the technical concepts of tax deferral, defining deferred taxes and explaining the application of the Liability method under IAS 12.
4 Conclusion: The summary reflects on how international standards provide a more comprehensive framework for deferred taxes compared to traditional German regulations.
5 Literature: A compilation of the references and standards cited throughout the assignment.
Keywords
IFRS, IASB, Deferred Taxes, Accounting Standards, HGB, Tax Deferral, Financial Statements, Liability Method, Temporary Concept, IAS 12, Assets, Liabilities, Accounting Profit, Taxable Profit, Internationalization.
Frequently Asked Questions
What is the core purpose of this paper?
The paper aims to provide a fundamental overview of international accounting standards and specifically analyzes the accounting treatment of deferred taxes under IFRS.
Which accounting frameworks are being compared?
The study compares the International Financial Reporting Standards (IFRS) with the German Statutory Accounting Rules (HGB).
What is the primary goal regarding deferred taxes?
The goal is to explain how deferred taxes are defined, categorized, and recognized to ensure that tax expenses are properly matched with the financial results of an enterprise.
Which scientific method is applied?
The work utilizes a descriptive, comparative literature-based analysis of international accounting regulations and relevant financial standards.
What are the main topics discussed in the body chapters?
The chapters cover the qualitative characteristics of financial reporting, the distinction between timing and temporary concepts, and the specific application of the Liability method for deferred tax assets and liabilities.
Which keywords define this work?
Key terms include IFRS, IASB, Deferred Taxes, HGB, Temporary Concept, and Financial Statement accuracy.
Why are deferred taxes necessary according to the author?
Deferred taxes are necessary to create a logical link between financial accounting profits and taxable profits when transactions are treated differently in each.
What does the "temporary concept" imply?
The temporary concept is a balance-sheet-oriented approach under IAS 12 that accounts for differences in the carrying amounts of assets and liabilities between financial statements and tax accounts.
How are deferred tax assets treated under IAS 12?
Deferred tax assets are recognized if it is more likely than not (>50%) that future tax advantages can be utilized, and they are subject to periodic impairment testing.
- Quote paper
- Dipl-Kfm. Michael Mehnert (Author), 2009, The Accounting of Deferred Taxes under IFRS, Munich, GRIN Verlag, https://www.grin.com/document/141302
