Deferred tax accounting is tricky—but getting it wrong can have serious consequences. Companies often misclassify liabilities, produce confusing financial statements, and invite audit scrutiny. Small errors in deferred tax treatment can snowball into big problems.
The Problem: Confusing Temporary vs. Permanent Differences
Deferred tax arises from timing differences between accounting profit and taxable profit. Misclassifying temporary and permanent differences can inflate or understate deferred tax assets and liabilities, leading to inaccurate reporting and compliance risks.
The Solution: Understand ASC 740 and FRS 19 Principles
US companies follow ASC 740, while UK subsidiaries may report under FRS 19. Both frameworks require careful distinction between temporary and permanent differences. Establishing clear policies ensures deferred tax balances are calculated correctly and consistently.
The Challenge: Inconsistent Accounting Across Jurisdictions
Multinational companies often struggle with cross-border differences. US subsidiaries under ASC 740 and UK entities under FRS 19 may recognize and measure deferred tax differently, creating misalignment in consolidated statements.
The Action: Standardize Deferred Tax Accounting Policies
Implementing standardized processes, reconciling cross-border differences, and maintaining consistent reporting ensures deferred tax is recorded accurately across all jurisdictions. This reduces surprises during audits and improves transparency for stakeholders.
The Challenge: Ignoring Valuation Allowances and Updates
Deferred tax assets and liabilities aren’t static. Failing to reassess them for impairment, changes in tax rates, or recoverability can lead to unexpected year-end adjustments and compliance issues.
The Action: Implement Regular Reviews & Valuation Checks
Scheduled assessments and updates keep deferred tax balances current and audit-ready. Companies can track recoverability, adjust for tax law changes, and maintain accurate financial statements without last-minute stress.
The Result: Accurate Deferred Tax & Audit Confidence
With the right approach:
- Liabilities and assets are correctly reported
- Financial statements are transparent and reliable
- Audit risks and adjustments are minimized
Deferred tax becomes a controlled process rather than a compliance headache.
Are You Getting Deferred Tax Right?
- Identify temporary vs. permanent differences correctly
- Align accounting across US and UK jurisdictions
- Reassess deferred tax assets and liabilities regularly
- Ensure your financial statements are audit-ready and accurate
Don’t let deferred tax mistakes cost you. DM us ‘DEFERRED’ for a free checklist to review your ASC 740 / FRS 19 accounting practices.