Final answer:
The creation of a deferred tax asset valuation allowance relies on managerial judgment, as managers must assess future profitability and tax planning strategies to determine the asset's realizable value.
Step-by-step explanation:
The question addresses whether the creation of a deferred tax asset valuation allowance relies on managerial judgment. The answer is true. According to accounting principles, specifically under the Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), a valuation allowance must be recognized if it is more likely than not that some portion or all of the deferred tax asset will not be realized. Determining whether a deferred tax asset is realizable requires significant judgment from management about future taxable income. This includes assessments of the company's future profitability, tax planning strategies, and the fiscal environment. If the future realization of the asset is uncertain, a valuation allowance must be set aside to reflect the likely reduction in the asset's value.