The 'New' Deferred Tax: a Comment on AARF Discussion Paper No. 22 'Accounting for Income Tax'

Discussion Paper No. 22 Accounting for Income Tax (DP 22), issued by the Australian Accounting Research Foundation, represents significant change through its advocacy of a "balance sheet" rather than the currently prescribed "income statement" approach for the recognition of deferred tax assets and liabilities. This paper clarifies the differences between the two methods and illustrates their effects on financial statements. It evaluates DP 22's arguments in favour of the balance-sheet approach and provides some guidance on the "usefulness" of deferred tax numbers. The paper concludes that the logical inconsistencies in DP 22, coupled with the available evidence on income-tax allocation, suggest that we should be cautious in making changes to current reporting requirements.