Company Valuation Under IFRS : Interpreting and Forecasting ...

Company valuation under IFRS
3.3 US GAAP Focus
The differences here relate to the detailed application. In broad terms the
standards are similar and the IASB/FASB are addressing some of the
differences in the short term.
Key differences:
• US GAAP provides exemptions from the idea that all temporary differences
should be recognised. These relate to leveraged leases, undistributed earnings
of subsidiaries and certain (development) costs in the oil and gas industry.
• US GAAP requires the use of an enacted rate of tax for deferred tax
purposes whereas IAS 12 will allow the use of a ‘substantially enacted’ one.
For example if a government was expected to change the future tax rate
then this new rate would be more readily useable under IFRS rather than
US GAAP.
• Classification of deferred tax assets and liabilities under IFRS is always
non-current. Under US GAAP the classification follows the asset/liability
to which it relates.
• Different rates are used for deferred taxes on inter-company transactions.
IAS 12 requires the use of the buyers’ tax rate whereas US GAAP requires
theseller’sratetobeused.
3.4 Implications for financial statement analysis
Deferred taxation makes financial statements more useful. There are a number of
useful deferred taxation disclosures that valuers should master in order to glean
as much information as possible about the nature of the company’s tax charge:
• The actual current taxation charge note explains what elements of the tax
charge come from current, as against deferred, taxation.
• The current tax charge also highlights any overseas tax issues (e.g. non
reclaimable tax credits on the remittance of overseas earnings) as well as
over/under provisions relating to the accuracy of estimating historic tax
charges.
• The deferred tax reconciliation explains why the accounting profit before tax
multiplied by the statutory tax rate in the home country does not equal the
tax expense in the income statement. Examples of typical differences would
include:
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