Financial Accounting Report: US GAAP and IFRS Comparison

This report analyzes financial accounting, specifically focusing on income tax. It begins by comparing the proposed accounting standard update with the current exposure draft topic 740 on income tax, highlighting changes related to disclosures for public business entities and modifications to existing requirements. The report then examines the measurement of temporary differences in revenue recognition for tax and financial reporting purposes, discussing the impact of changes in income tax law on deferred taxes and the treatment of deferred tax assets. Furthermore, the report compares and contrasts IFRS and US GAAP with respect to the exposure draft topic 740, detailing differences in the recognition of tax consequences, balance sheet presentation, classification of deferred tax liabilities and assets, and the approach to calculating deferred tax. The analysis covers the recognition and measurement of deferred tax under both standards, including the use of valuation allowances and the treatment of share-based payments. The report concludes by summarizing the similarities and differences between IFRS and US GAAP in the context of income tax accounting.

Running head: FINANCIAL ACCOUNTING
Financial accounting
Name of the Student
Name of the University
Author note

1FINANCIAL ACCOUNTING
Comparing the standard with the current exposure draft topic 740 on the income tax:
A proposed accounting standard update was issued by the Financial accounting
standard board that intends to eliminate and modify the some requirements related to the
disclosures of income tax along with establishing requirements for new disclosure. The term
public entity in topic 740, Income tax in the proposed update would be replaced by the term
public business entity. The existing rate reconciliation requirement concerning public
business entities would be modified with the amendment and the requirement being
consistent with the Regulations of SEC (Securities and Exchange Commission), US
(Federalreserve.gov, 2019).
The current practice explicitly requires public business entities for the first five years
after reporting date to disclose the amount of carry forwards of state, federal and foreign by
time period of expiration. Such diversity would be reduced in the proposed update of
amendments. In addition to this, unlike the existing practice, it is also required by the public
business entity under the proposed update to disclose the allowance of valuation associated
with the amounts that are tax affected concerning the foreign, state and federal carry forwards
(Miller et al., 2016). Furthermore, for the carry forwards expiring along with the expiration
dates and carry forward that does not expire, the total amount should be disclosed by all
entities other than public business entity.
There is removal of requirement concerning by significant country disaggregation
related to the payment of income tax under the proposed accounting standard update. In
addition to this, there is also retaining of the amount of income tax expense and paid for the
continuing operations that are disaggregated by domestic and foreign amounts and the
amount of loss or income resulting from continuing operations (Larson et al., 2017).

2FINANCIAL ACCOUNTING
The measurement of temporary differences in the timing of recognizing revenue for
taxation purpose and for the purpose of financial reporting should be done in accordance with
the ASC 740. In order to capture any new temporary difference in tax for the purpose of
reporting, it might be required by company to revise their process of collecting data and tools.
The effect of change in the law of income tax concerning deferred tax is recorded as a part of
comprehensive income or shareholder equity under the current standard. In general if there is
change in rate of taxation, then the deferred tax are subjected to remeasurement. This is so
because accrued taxes on transactions of intra entity are attributable to amount of taxation
paid. However the new tax laws do not take into account the reversal of such amount and
they are also not subjected to the provisions of remeasurement under ASC 740 (Morris,
2017).
According to the amendments, deferred tax assets are not realizable because they can
be carried forward for an infinite period. Instead, the realization of deferred tax is done to the
extent that the existence of sufficient taxable income would help in sustaining the deferred
tax amount within the carry back and carry forward period under the law of taxation.
Therefore, it can be observed from the comparison of the existing standard with the income
tax topic 740 that there is a considerable difference in the taxation treatment (fasb.org, 2019).

3FINANCIAL ACCOUNTING
Comparing and contrasting IFRS and US GAAP with respect to the exposure draft
topic 740 on the income tax:
The existing prohibition concerning the recognition of consequences of income tax of
an intra entity transfer is eliminated by the amendments. Such amendments align the IFRS
with the recognition of consequence of income tax for the transfer of assets.
In the event of existence of tax credit carry forward or carry forward of operating loss,
there is no explicit guidance for any unrecognized tax benefits on the balance sheet
presentation under the current US GAAP. The current US GAAP would improve due to the
amendment of the proposed update as there would be reduction in practice diversity as there
would be guidance on unrecognized tax benefits presentation. There is a separation of
deferred tax liabilities and assets into noncurrent and current amount under US GAAP
compared to IFRS where there is no classification of such tax assets and liabilities separately
(fasb.org, 2019). Instead, the entity separately classifies noncurrent and current liabilities and
noncurrent and current assets.
For the calculation of deferred tax under US GAAP, an asset and liability approach is
followed. There is difference in the application of such approach under IFRS and US GAAP.
Such approach under IFRS focuses on the temporary differences between carrying amount in
the financial position statement and tax base for liability and assets. There is difference in the
reason for and not for recognizing the deferred tax under both the standard. Recognition of
deferred tax under US GAAP as against IFRS is prohibited for temporary differences
between related to liabilities and assets. Measurement of current and deferred tax liabilities
and assets are based on the is based on enacted law under US GAAP compared to IFRS
where the measurement of deferred tax is done at the applicable tax rate when the liability is
settled and assets are realized (Larson et al., 2017). In addition to this, there is full recognition

4FINANCIAL ACCOUNTING
of deferred tax and a valuation allowance is used for its reduction under the GAAP unlike
IFRS where the recognition of deferred tax are done to the extent that it is likely that there
will be carry forward of unused tax credits and loss because of availability of taxable profits.
For both the IFRS and US GAAP, irrespective of initial recording of deferred tax in
equity, income and business combination, any subsequent changes in deferred tax liabilities
and assets are recognized in income. Recording of deferred tax under IFRS is done for the
difference between cumulative remuneration expense and the amount of tax deduction related
to the awards of share based payments. On other hand, under US GAAP, adjustment of
deferred tax for the current share price is recorded on the settlement (iasplus.com, 2019).
Therefore, from the analysis of several facets of the taxation treatment, it can be seen that
there are some similarities along with the existence of difference between IFRS and US
GAAP.

5FINANCIAL ACCOUNTING
Reference list:
Exposure Documents & Public Comment Documents. (2019). Fasb.org. Retrieved 24 April
2019, from https://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176157086783
Ey.com. (2019). Retrieved 24 April 2019, from
https://www.ey.com/Publication/vwLUAssets/US_tax_reform_-
_A_guide_to_income_tax_accounting_considerations/%24FILE/2017G_07168-
171Gbl_US%20tax%20reform%20A%20guide%20to%20income%20tax
%20accounting%20considerations.pdf
Federalreserve.gov. (2019). Retrieved 24 April 2019, from
https://www.federalreserve.gov/supervisionreg/srletters/sr1802a1.pdf
Heads Up — FASB proposes changes to income tax disclosure requirements. Iasplus.com.
(2019). Retrieved 24 April 2019, from
https://www.iasplus.com/en/publications/us/heads-up/2019/issue-5
Larson, M. P., Lewis, T. K., & Spilker, B. C. (2017). A case integrating financial and tax
accounting using the balance sheet approach to account for income taxes. Issues in
Accounting Education, 32(4), 41-49.
Miller, T., Miller, L., & Tolin, J. (2016). Provision for income tax expense ASC 740: A
teaching note. Journal of Accounting Education, 35, 102-126.
Morris, J. L. (2017). Classification of Deferred Tax Assets and Deferred Tax Liabilities: An
Evaluation of FASB’s Attempt at Standards Simplification. Journal of Accounting
and Finance, 17(8).

6FINANCIAL ACCOUNTING
Proposed Accounting Standards Update (Revised)—Income Taxes (Topic 740): Disclosure
Framework—Changes to the Disclosure Requirements for Income Taxes.
(2019). Fasb.org. Retrieved 24 April 2019, from
https://fasb.org/jsp/FASB/Document_C/DocumentPage?
cid=1176172382198&acceptedDisclaimer=true