Comparison between U.S. GAAP and International ... - Grant Thornton

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Comparison between U.S. GAAP and International Financial Reporting Standards 66 IFRS differences that arise when nonmonetary assets and liabilities are measured in their functional currency but have a tax base determined in a different currency (IAS 12.41). U.S. GAAP deferred taxes for differences related to assets and liabilities that are remeasured from the local currency into the functional currency using historical exchange rates and that result from changes in exchange rates or indexing for tax purposes (ASC 740-10-25-3(f)). Recognition and measurement Current tax liabilities and assets for the current and prior periods shall be measured at amounts expected to be paid to (recovered from) the taxation authorities based on tax rates (and tax laws) that have been enacted or substantially enacted by the end of the reporting period (IAS 12.46). Deferred tax assets and liabilities shall reflect the tax consequences that would follow from the manner in which the entity expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities (IAS 12.51). Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period (IAS 12.47). IFRS does not have recognition and measurement provisions similar to FIN 48. Note: Certain sections of IAS 12 have been amended regarding the measurement of deferred tax assets and liabilities. If a deferred tax asset or a deferred tax liability arises from a non-depreciable asset measured under the revaluation model in IAS 16, the measurement of deferred taxes shall reflect the tax consequences of recovering the carrying amount of that asset through sale (IAS 12.51B). If deferred taxes arise from an investment property valued at fair value under IAS 40, there is a rebuttable presumption that the carrying amount is recovered through sale (IAS 12.51C). The amendments are effective for annual periods beginning on or after January 1, 2012. Early application is permitted. In general, deferred tax assets shall be recognised to the extent that it is probable (in general, more likely than not) that taxable profit will be available against which deductible temporary differences and unused tax losses and unused tax credits carried forward can be utilised. At the end of each reporting period the deferred tax assets shall be reviewed and the carrying amount reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of all or Unlike IFRS, U.S. GAAP uses a two-step process to recognize and measure the financial statement effects of a tax position. An enterprise initially recognizes the financial statement effects of a tax position when it is more likely than not (likelihood of more than 50 percent), based on the technical merits, that the position will be sustained on examination (ASC 740-10-25-6). A tax position that meets the more likely than not threshold is then initially and subsequently measured as the largest amount that is greater than 50 percent likely of being realized on settlement with a taxing authority (ASC 740-10-30-7). This guidance applies to all entities including tax-exempt not-for-profit entities, pass-through entities and entities that are taxed in a manner similar to pass-through entities such as real estate investment trusts and registered investment companies (ASC 718- 10-15-2AA). The measurement of current and deferred tax assets and liabilities is based on enacted tax law (ASC 740-10-30-2). Deferred tax assets and liabilities are measured using the enacted tax rate(s) expected to apply to taxable income in the periods in which the deferred tax liability or asset is expected to be settled or realized (ASC 740-10-30-8). Unlike IFRS, tax rates that have been substantially enacted by the balance sheet date should not be used. Unlike IFRS, deferred tax assets are recognized in full and reduced by a valuation allowance if it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized (ASC 740-10-30-5(e)). © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
Comparison between U.S. GAAP and International Financial Reporting Standards 67 IFRS part of that deferred tax asset to be utilised. Any such reduction shall be reversed to the extent that it becomes probable that sufficient taxable profit will be available (IAS 12.24, .34, and .56). Deferred taxes on elimination of intragroup profits shall be calculated with reference to the tax rate of the buyer (the entity that holds the inventory) at the end of the reporting period. Taxes paid by the seller are recorded as a current tax expense. Current and deferred tax shall be recognised outside profit or loss if the tax relates to items that are recognised, in the same or a different period, in other comprehensive income, or directly to equity (IAS 12.61A). Deferred tax assets and liabilities shall not be discounted (IAS 12.53). U.S. GAAP Unlike IFRS, deferred taxes are not recognized on elimination of intercompany profits (ASC 740-10-25-3(e)). Taxes paid by the seller on intercompany profits shall be recorded as an asset and recognized on the sale to a third party. Similar to IFRS, the tax effects of certain items occurring during the year are charged or credited directly to other comprehensive income or to related components of shareholders’ equity (ASC 740-20-45-11). However, certain subsequent changes in deferred tax assets and liabilities (such as those related to changes in tax rates and tax laws) shall be recognized in income regardless of whether the deferred tax was initially recorded in income, equity, or a business combination (ASC 740-10-45-15). Similar to IFRS, deferred tax assets and liabilities shall not be discounted (ASC 740-10-30-8). Intraperiod tax allocation Subsequent changes in deferred tax assets and liabilities shall be recognised in profit or loss except to the extent that they relate to items previously recognised outside profit or loss (IAS 12.60). Similar to IFRS, except that certain subsequent changes in deferred tax assets and liabilities (such as those related to changes in tax rates and tax laws) shall be recognized in income regardless of whether the deferred tax was initially recorded in income, equity, or a business combination (ASC 740-10-45-15). Business combinations At the acquisition date, a deferred tax liability or asset (to the extent it meets the recognition criteria discussed above) shall be recognised for an acquired entity’s temporary differences (with certain exceptions) or income tax loss carryforwards. If not recognised at the acquisition date, an entity shall recognise acquired deferred tax benefits that it realises after the business combination as follows (IAS 12.68): • In goodwill if the change occurs (1) during the measurement period and (2) as a result of new information about facts and circumstances that existed as of the acquisition date. If goodwill is reduced to zero, any remaining deferred tax benefits shall be recognised in profit or loss. • All other deferred tax benefits realised shall be recognised in profit or loss (or outside of profit or loss if required by IAS 12). At the acquisition date, a deferred tax liability or asset shall be recognized for an acquired entity’s temporary differences (with certain exceptions) or operating loss or tax credit carryforwards. If necessary, a valuation allowance for an acquired entity’s deferred tax asset shall also be recognized. A change in the valuation allowance shall be recognized as follows (ASC 805-740-25-3 and 45-2): • In goodwill if the change occurs (1) during the measurement period and (2) as a result of new information about facts and circumstances that existed as of the acquisition date. If goodwill is reduced to zero, any additional decrease in the valuation allowance shall be recognized as a gain on a bargain purchase. • All other changes shall be adjustments to income tax expense or contributed capital, as appropriate, and shall not be recognized as adjustments to the © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
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