In this paper we evaluate the International Accounting Standards Board's (IASB) efforts, in a discussion paper (DP) of 2013, to develop a new conceptual framework (CF) in the light of its stated ambition to establish a robust and consistent basis for future standard setting, thereby guiding standard setting decisions in complex and controversial areas. We investigate the impact of the definitions and recognition criteria for assets and liabilities in the existing CF and the DP. We conclude that, in areas where standards have diverged from the CF in the past, that is, not consistently applying probability thresholds, the DP supports the existing standards by removing those thresholds. Furthermore, the DP includes the more judgemental criteria of relevance and faithful representation to determine whether an item should be recognised as an asset or liability. This would justify those existing standards which currently do not recognise items that meet the (current and revised) definitions of asset or liability. Altogether, we conclude that the development of IFRSs will continue to be the outcome of professional debate, negotiation, consensus seeking and political influence. We therefore recommend that additional measures should be taken by the IASB to ensure coherence in the development and application of standards after implementation of a new CF.
We analyse the conceptual problems in current accounting for deferred taxes and provide solutions derived from the literature in order to make International Financial Reporting Standards (IFRS) deferred tax numbers value-relevant. In our view, the empirical results concerning the value relevance of deferred taxes should find their way into the accounting standard-setting process. We conclude that deferred taxes should only be recognised for temporary differences that will result in real future tax payments and/or tax receipts. Temporary differences for which the tax cash flow has already occurred have valuation implications for the underlying asset or liability and should, therefore, be accounted for based on the valuation adjustment approach. Furthermore, we conclude that partial allocation should replace comprehensive allocation in order to better align deferred taxes with expected future cash flows and thus increase their relevance and understandability. Finally, we conclude that deferred tax balances should be measured on a discounted basis to address time value.
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