CHAPTER THREE
DEFERRED TAXATION - WHAT IS IT?
Executive Summary
A The aim of deferred taxation is to ensure a consistent rate of tax on the profits of an entity, regardless of the timing of various tax adjustments. The deferred tax provision was called, very many years ago, the tax equalisation account, and this provides an insight into its function. B Deferred tax accounting involved some very subjective judgements for a period up to 2000. For this reason it has been viewed with some considerable suspicion by those without an intimate knowledge of its inner workings. Since 2000 Financial Reporting Standard 19 (“FRS 19”) (the relevant standard under UK GAAP) has required a far less subjective approach. C The relevant standard under international financial reporting standards or IFRS is IAS 12. This has a slightly different approach to deferred tax accounting but the fundamentals are the same in the two systems: neither involve subjectivity in any material way. D As subjectivity has now been largely stripped from accounting for deferred tax it is a subject that can be embraced by the non-Accountant with rather greater confidence than previously.
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