The association between deferred tax assets and liabilities and future tax payments.

摘要

This paper examines whether the balance sheet accruals for deferred taxes disclosed under Statement of Financial Accounting Standards No. 109 provide information about future tax payments that is incremental to the information provided by the current tax liability and explores whether the relationship is affected by the likelihood and timing of the reversal of the deferred tax accounts. Prior empirical research suggests the tax-impact of the balance sheet accruals depends on the probability and timing of the reversal, which contradicts recent theoretical research. This paper uses an accrual-based model of accounting for income taxes demonstrating there is an asymmetrical association between the balance sheet accruals and future tax-related tax cash flows. For instance, when revenues and expenses are included in taxable income after GAAP income (e.g., warranty expense) the model predicts the tax-related cash flow is realized when the deferred tax account reverses, suggesting the timing of the reversal matters. In contrast, when revenues and expenses are included in taxable income before GAAP income (e.g., accelerated depreciation) the model predicts the tax-related cash flow is realized when the deferred tax account originates, suggesting the timing of the reversal is not relevant.;Using detailed analysis of the disclosures of deferred taxes in the notes to the financial statements, the empirical analysis confirms the predictions of the accrual-based model. Further, the empirical analysis provides evidence that the balance sheet accruals provide information about future tax payments that is incremental to the information provided by the current tax liability. However, the information is relevant only over long prediction intervals. Finally, the analysis provides evidence that growth in the deferred tax balances does not defer future tax-related cash flows.