One of the tasks faced by the Accounting Standards Board (ASB) in their convergence to an international-based financial reporting framework, notably the Financial Reporting Standard for Mid-Sized Entities (FRSME) is the issue of simplification in certain areas, in particular the revaluation of non-current (fixed) assets, leasing and deferred taxation.
This article looks at the general concept of deferred tax and the options that could be available to the ASB in their quest for simplification.
Deferred tax is probably one of the most disliked concepts by accountants, and probably one of the most confusing for their clients. As accountants are aware, the objective of deferred tax is to iron out the tax inequalities arising as a result of timing differences. For example, in years when corporation tax is saved by timing differences such as accelerated capital allowances, a deferred tax liability is set up in the balance sheet which essentially reverses as and when the timing difference reverse.