In: Accounting
The FASB requires that deferred tax assets and liabilities not be discounted. In at least three paragraphs, support one of the positions presented below. You should use references to reference material, as necessary.
In 3 paragraphs
Position: Present arguments against discounting deferred tax liabilities.
The reliable determination of deferred tax assets and
liabilities on a discounted basis requires detailed scheduling of
the timing of the reversal of each temporary difference. In many
cases such scheduling is impracticable or highly complex.
Therefore, it is inappropriate to require discounting of deferred
tax assets and liabilities. To permit, but not to require,
discounting would result in deferred tax assets and liabilities
which would not be comparable between entities. Therefore, this
Standard does not require or permit the discounting of deferred tax
assets and liabilities.
The lack of discounting will make tax discounting more valuable.
Assuming that the market accepts this valuation it will mean
increased effort toward tax deferral and possibly increased
investment rates. Corporations will hold appreciating assets for
longer periods to defer taxes, and will forgo some short term gains
in favor of increasing the expected future tax defferal items on
the balance sheet.