FRA question

[question removed by admin] Can anyone explain this question please and why the other answers are not correct?

I remembered that DTA and DTL are only in GAAP and not IFRS. Also, valuation allowance to reduce DTA when it is likely to not be realized is only for GAAP.

_ Wrong _: both IFRS and US GAAP incorporate DTAs and DTLs.

I’m not even sure I understand what the question is asking…

It’s saying that the current law says that the tax rate is 35%, there’s a new law that says it’ll be 28%, and they want to know when it’s OK to use the 28% rate to calculate DTAs and DTLs.

US GAAP says you have to wait until the law is (fully) enacted. IFRS says you can do it when it’s substantially enacted.

If you ask me what the difference is between substantially enacted and fully enacted, I’ll reach through the computer and hit you. On the exam they’ll say “enacted” (use under both US GAAP and IFRS) or “substantially enacted” (use only under IFRS).

That is odd… this is my first time hearing of this, but know I know. Thanks again!

My pleasure.

Thank you for correcting me!

I had to google the meaning of substantive…

is there a like button here? - great thread on tax rate changes - so summarily:

In the context of tax rate changes - if new rate law is substantially enacted use IFRS, otherwise if just enacted IFRS and GAAP. in GAAP you wait till law is enacted, you can apply new tax rate faster in IFRS if substantially enacted.