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Hi, I was wondering could you please explain what the following means? I don’t understand what the examiner is trying to say. I got it from the SBR UK March June 2019 past exam paper, it’s part of question 4 (a) (ii).
“The accounting for deferred tax seems to be based upon the matching principle of income and tax expenses rather than the definitions of an asset and a liability, with the result that the model results in deferred debits which are unlikely to result in tax cash outflows and thus do not meet the criterion of an expected future outflow of economic benefits in the Conceptual Framework.”
Thanks
My best guess:
Conceptual framework implies a balance sheet focus – sort out assets and liabilities and let profit be a balancing figure
INT DT – follows this because DT is calculated by looking at the balance sheet date and comparing CA and tax base on that date to get the temporary difference – so the balance sheet will be in line with conceptual framework
UK DT – takes a different approach in analysing timing differences (note that the jargon is different) – DT arises when taxable profit falls out of line with accounting profit – a so-called profit and loss approach – the balance sheet is then a balancing figure – and whether or not you’ve created a meaningful asset or liability is irrelevant
As always in discussion , the key thing is to explain the IFRS, define asset and liability, and have a stab at discussing it.
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