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Deferred taxes
Section 306 of the HGB states that deferred taxes must be recognized for all temporary differences
between the carrying amounts in the tax accounts and those reported in the consolidated financial
statements (timing concept); they are computed at the current tax rate. This recognizes timing differences
between the tax accounts and the statutory financial statements (financial statements I) as
well as the financial statements prepared for inclusion in the consolidated accounts (financial statements
II). The effects of consolidation measures that are subsequently reversed over the course of
time also have to be recognized. The HGB does not permit deferred taxes to be recognized for either
quasi-permanent differences or losses carried forward.
U.S. GAAP (SFAS 109 ‘Accounting for Income Taxes’) state that deferred taxes have to be recognized
for temporary differences arising between the tax bases of assets or liabilities and their carrying
amounts in the consolidated financial statements, with quasi-permanent differences being classified
as temporary (temporary concept). As under the HGB, this recognizes differences between the tax
accounts and financial statements I and II and the effects of consolidation measures. Unlike the HGB,
it only recognizes such differences if they are temporary. Additionally, deferred taxes are recognized
on net operating loss (NOL) carryforwards to the extent that their future tax benefit or utilization
can be realized. Tax is computed at the rate applicable under current law to retained earnings at the
balance sheet date, taking account of future known changes to the tax rate. If deferred tax assets
are unlikely to be realized, a valuation allowance is reported.
Other Provisions and Accruals
In addition to the requirement to report provisions for liabilities and impending losses pursuant to
section 249 (I), the HGB also states that provisions and accruals may be recognized for certain
expenses that do not constitute an obligation toward a third party (expense provisions pursuant to
section 249 (II) of the HGB). Provisions and accruals are calculated pursuant to section 253 (I) of
the HGB in accordance with customary commercial principles and the prudence principle.
The reporting of provisions and accruals under U.S. GAAP (CON 6 ‘Elements of Financial Statements’
and SFAS 5 ‘Accounting for Contingencies’) is much more restrictive. Accruals and provisions may only
be established if an obligation toward a third party exists, there is a likelihood of its crystallization
and its amount can be reasonably estimated. Expense provisions are not permitted. When such provisions
and accruals are accounted for, the most probable value is reported; if there is a range of
equally probable values, the lowest one is reported.
Provisions and accruals for losses on long-term contracts have to be recognized in full under U.S.
GAAP – as they do under the HGB – in the period in which such losses become apparent. Under
U.S. GAAP, however, provisions are formed on the basis of total estimated residual costs, including
all production-related costs in full.