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Friday, July 27, 2007

J-GAAP: Income Taxes

Japanese accounting standard for income taxes, which specifically requires recognition of deferred tax assets and liabilities on a parent-only basis, was issued in 1998. Previously, inter-period allocation for income taxes was at the entity’s option when it was required to present its consolidated financial statements to be filed with the MOF since 1970’s, and was required first on the consolidated financial statements in 1997 by accounting standards for consolidated financial statements.

Japanese GAAP and the international accounting standards both adopt the asset and liability approach to accounting for income taxes. That is, both require identifying temporal taxes and applying effective tax rates to the temporary differences. Deferred tax assets would be recognized to the extent that deductible temporary differences can be collected through future taxable income.

IAS 12 (revised 2000), Income Taxes, requires an entity not to discount cash flows from income taxes. Japanese GAAP does not mention about discounting, but are generally understood that discounting is not an accepted practice.

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