Lesson 44 - Advanced Accounting Course

Lesson 44: GAAP vs. IFRS Tax Treatment Differences

💡 Why Does It Matter?

Both GAAP (Generally Accepted Accounting Principles – US) and IFRS (International Financial Reporting Standards) deal with taxes, but they treat deferred taxes, tax rates, and disclosures a bit differently.

📍 Knowing these differences is important if you're working in international accounting, auditing, or financial reporting.

🧾 What Do Both Systems Cover?

Both GAAP and IFRS address:

• 💰 Current taxes (based on taxable profit today)
  
  

• 📊 Deferred taxes (due to timing differences)
  
  

• 📄 Tax disclosures (what needs to be reported)
  
  

But the rules and flexibility differ between the two.

📊 Key Differences at a Glance

🧠 What Are Deferred Taxes Again?

Quick reminder 👇

• Deferred Tax Liability (DTL): You will pay more tax in the future (e.g., due to accelerated depreciation).
  
  

• Deferred Tax Asset (DTA): You’ll save on taxes in the future (e.g., due to loss carryforwards).
  
  

📘 Example: Recognition of Deferred Tax Assets

🔍 Scenario:

Company has $100,000 in carryforward losses.

• 🇺🇸 Under GAAP: It must prove it’s “more likely than not” to use those losses → Needs strong evidence.
  
  

• 🌍 Under IFRS: It must show it's “probable” → Slightly easier to justify.
  
  

✅ So under IFRS, the DTA is more likely to appear on the balance sheet.

🧾 Example: Tax Rate Changes

Let’s say a country announces a new tax rate but hasn’t passed the law yet.

• 🇺🇸 GAAP: Use the current enacted rate only (until law is officially passed).
  
  

• 🌍 IFRS: If it’s “substantively enacted,” you can use it — earlier recognition.
  
  

🧠 Practical Implications

📚 Summary Table 

📘 Recap