Question
Using 100 words, EXPAND FURTHER on this : Inter-period allocation when a company allocates income taxes over several periods by recognizing deferred tax assets and
Using 100 words, EXPAND FURTHER on this :
"Inter-period allocation when a company allocates income taxes over several periods by recognizing deferred tax assets and liabilities. One advantage that I found under this method, allowed by the GAAP, is that it creates a standard approach for many businesses to use. This allows investors and creditors to more easily compare the financial statements of multiple companies. (2023) One con I found was that using this approach can be cumbersome and complex which can lead to confusion for those trying to analyze the financial records. Under IFRS, the crystallization approach is allowed. Following this approach means that deferred income taxes would only be recognized if the taxes are expected to be realized.
If accounts payable are expected to increase year after year, under the crystallization approach those liabilities would only be recorded in the financial statements if they were likely to be realized. This would impact the records in a negative way if the accounts were never expected to be paid back. Based on this, I do not believe the crystallization approach should apply to this liability.
After researching, I am left conflicted on how reasonable this approach seems. Leaving information out of financial records if they may not be realized does not seem appropriate but I am eager to see what other peers think of this too!"
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