Deferred tax and Corporation Tax
Theory:
- due to temporary differences between the book and tax value of assets and liabilities, it is necessary to calculate deferred tax (IAS 12 , par. 20),
- the deferred income tax asset is to be updated subject to the probability of applying negative temporary differences on which the assets were calculated.
Examples of errors
- deferred income tax is calculated with the income statement approach instead of the balance sheet approach and thus it is calculated on timing differences and not on temporary differences
- certain temporary differences are not identified (e.g. financial leasing, provisions, impairment provisions to fixed assets)
- deferred income tax asset is not analysed for probability of application in the future (e.g. possibility to apply tax losses)
