Question

In: Accounting

The FASB requires that deferred tax assets and liabilities not be discounted. In at least three...

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.

Solutions

Expert Solution

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.


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