Question

AASB 112 governs accounting for income tax. Briefly outline some of the criticisms and associated social implications of this standard.

Answer 1

Criticisms:
•Too complex – it requires detailed internal record-keeping
•Lacks relevance for users of the information
•Objective is to measure deferred tax liability and deferred tax asset reliably but
:•It’s unlikely deferred tax liability satisfies Framework 2010’s definition of liability
•There’s doubt whether a deferred tax asset is an asset.

Social Implications
For Australian listed companies, what impact has the transition to the balance sheet approach under AASB 112 had on the normalising effect of tax effect accounting? Such an inquiry has provided an example of the shifting sands of accounting. The idea of TEA arose during the normative era, prescribing what ‘ought’ to happen, linking into the true income prescriptive theory. This study asked whether TEA has had the effect of normalising reported profits – as per its prescriptive rationale – and, if so, was this effect accentuated on transition to the balance sheet approach. The inquiry then contemplated the possible costs of such an aim by considering the implications for the balance sheet.