A Study on The Current and Non－current Classification of Deferred Tax Assets and Liabilities
Asian Tax Journal Vol. 13 No. 4 (2012), pp. 63-85
Abstract
Deferred tax assets and liabilities that imply future tax savings and future tax payments have important measurement difficulties in judgement about possibility and timing of realization. Financial reporting standard requires that deferred tax assets should be measured by considering the possibility of realization, but do not requires consideration about timing of realization. The measurement problem of realization timing can be reduced by the current and non－current classification of deferred tax assets and liabilities. From 2005 to 2010, the financial statements of Korea listed companies applied the current and non－current classification of deferred tax assets and liabilities provide opportunity to seek for improvement on the measurement of deferred tax assets and liabilities. This study reviewed whether the financial reporting incentives affected on the current and non－current classification of deferred tax assets and liabilities. The results of review about the effect of the financial reporting incentives on the current and non－current classification of deferred tax assets and liabilities are summarized as follows. First,the higher the financial reporting incentives to manage the current and non－current classification of deferred tax assets and liabilities, the greater first order autoregressive coefficients after controlled the factors of current period. This results means that the higher the financial reporting incentives to manage the current and non－current classification of deferred tax assets and liabilities, the lower the realization degree of current deferred tax assets and liabilities. Second,considering debt to asset ratio in addition to current ratio before current deferred tax assets and liabilities as the financial reporting incentives, the first order autoregressive coefficients of current deferred tax assets and liabilities and the explanation of model increase significantly. Third,considering the demand for future cash flows from financing in addition to current ratio before current deferred tax assets and liabilities as the financial reporting incentives, the first order autoregressive coefficients of current deferred tax assets and liabilities and the explanation of model increase significantly.
Keywords
- the current and non－current classification of deferred tax assets and liabilities
- the realization degree of current deferred tax assets and liabilities
- financial reporting incentives
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