So is valuation allowance done only in US GAAP? I went through other forum discussions about this and there was no consensus…
If it is not allowed under IFRS then what is a similar effect of a valuation allowance under IFRS?
Under IFRS you reduce the deferred tax asset directly. Under US GAAP you achieve a similar effect via the valuation allowance.
regards
Can someone please confirm this ? Thanks.
USGAAP
An entity in BS shows full deffered tax amount and then reduces DTA by valuation allowance in amount that will probably not be realized.
IFRS
DTA is recognized only if it is probable than will be used in future periods (same criterium as any other asset recognizing). If future economic benefits of asset (DTA in this case) cannot be recognized and measured, it will not be recognized as an asset in BS.
So as wojtek said, in IFRS it will be directly reduced for an existing DTA?
There is no requirement for DTA valuation allowance account upon IFRS. IF DTA cannot be realized it will not be further recognized as asset in BS.
It’ll be by means of an impairment account (Loss) against the DTA account, not necessarily dropping the full amount of the DTA, but rather adjusting the carrying amount to the estimate of the impairment test.
The only substantial difference bewteen both reporting frameworks as Flashback states, is the use of a valuation allowance account (contra-asset) with US GAAP instead of directly substracting the impairment to the asset account with IFRS.
Thanks.
Does that mean that companies with losses in previous years (Under GAAP) can accumulate the allowance and then they pull it all back out at once, the company can report negative tax expense? Or is it again any rules? If yes, what rules? And if its not againts the rules then how would the company use it for their advantages? I am sorry for the back to back question and bad english, im a college student in Asia and im currently studying this topic (DTA under IFRS and GAAP) for my presentation in the future. Thank you