Question

Which of the following statements is correct with regards to IFRS and U.S. GAAP?

a. Under U.S. GAAP, all potential liabilities related to uncertain tax positions must be recognized.
b. The tax effects related to certain items are reported under U.S. GAAP; under IFRS the tax effects are charged or credited to income.
c. IFRS uses an affirmative judgment approach for deferred tax assets, whereas U.S. GAAP uses an impairment approach for deferred tax assets.
d. IFRS classifies deferred taxes based on classification of the asset or liability to which it relates.

Answer 1

The correct statement regarding IFRS and U.S. GAAP is that IFRS classifies deferred taxes based on the classification of the asset or liability to which it relates. This is unlike U.S. GAAP, which classifies all deferred tax assets and liabilities as non-current.

Step-by-step explanation:

The correct statement with regards to IFRS and U.S. GAAP is option d: IFRS classifies deferred taxes based on classification of the asset or liability to which it relates.

Under IFRS, deferred tax assets and liabilities are presented in the statement of financial position within non-current assets and non-current liabilities, unless the tax is expected to be recovered or settled in more than twelve months.

The classification of a deferred tax asset or liability under IFRS is associated with the classification of the related asset or liability. If the related asset or liability is current, the related deferred tax is also classified as current. If non-current, the related deferred tax is classified as non-current.

Under U.S. GAAP, however, deferred tax assets and liabilities are classified as non-current without considering the classification of the related asset or liability. This is a fundamental difference between the two standards in how deferred income taxes are classified in the balance sheet.