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Myers and Collins
THE ADVENT OF APB OPINION NO. 11 (1967)
As has been previously discussed, since passage of the Revenue Act of 1954, there had been little
agreement in the field of accounting regarding whether or not to accrue for book- tax ti ming
differences. Within this context, the APB promulgated Opinion No. 11 “Accounting for Deferred
Taxes” in 1967. The Board’ s m ajor objective in issuing this opinion was that “incom e tax
expense should include the tax effect s of reve nue and expense transaction s included in the
determination of pre-tax inco me” (Financial Executive, Feb ruary 19 68). Since income
determination was the foc us of the da y, the Boar d’s main concer n at the time was to facili tate
proper m atching. Also, APB Opinion No. 11 ’s issuance w as just prior to the Trueblood
Committee Report which focused on providing the financial statement user (assumed not to have
a high level of sophistication) with inf ormation for “predicting, com paring, and evaluating cash
flows” (Accounting Standards, 1986). In summary, the APB was issued on th e strength of the
matching principle as well as alerting financial statement users that cash flows will change due to
timing differences in corporate book and tax return figures.
To address these proble ms the Board re ached the fo llowing conclusions with regard to defe rred
taxes:
• Interperiod tax allocation is an integral part of the determination of income tax expense,
and income tax expense should include the effects of revenue and expense transactions
included in the determination of pre-tax accounting income.
• Interperiod tax allocation procedures should follow the deferred method, both in the
manner in which tax effects are initially recognized and in the manner in which deferred
taxes are amortized in future periods.
• Financial statement presentations of income tax expense and related deferred taxes
should disclose:
1. the composition of income tax expense as between amounts currently
payable and amounts representing tax effects allocable to the period, and
2. the classification of deferred taxes into a net current amount and a net noncurrent
amount.
The dissenting opinions pa ralleled the issues on whic h theorists and practitioners had previously
disagreed. P rimarily, Board members disagreed with using com prehensive allocation instead of
partial allocation. This was because co mprehensive allocation would have resulted in accounts
carried as assets which had no demonstrable value and which were never expected to be reali zed.
Also, these accounts could have been carried as l iabilities which were no m ore than mere
contingencies and there would be corres ponding charges to income for these contingent amounts.
They also be lieved that to require clas sification of deferred taxe s as curr ent asset s or current
liabilities would have contributed to a lack of under standing of working capi tal because t here
would have been a co mmingling of contingent items. Most post opinion criticisms of Opinion
No. 11 revolved around t he same old argu ments: creation of essentially meaningless bal ance
sheet accounts and criticism of the concept of interperiod allocation itself.
THE ENVIRONMENT POST APB OPINION NO. 11 (1968 – 1984)
Shortly after APB Opinion No. 11 was is sued, cri ticisms st arted to be voiced. Most of the
disagreements with the Opinion f ollowed the di ssents in the Opinion itself. Waugh (1968)
mentioned th at there m ight be problems in effectively im plementing t he Opinion . The main
focus of his article, however, questioned the classification of deferred taxes as a liability.
Payables do have a li mited life; the y do mature; they are replaced. The deferred tax
liability may possess these qualities; it may not. Where all available evidence points to a
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