Taxation Accounting
Summary
Taxation accounting encompasses the principles and practices by which organisations recognise, measure and disclose tax-related assets and liabilities in their financial statements. Central to this field is the distinction between current tax, calculated on taxable profit for the period, and deferred tax, arising from timing differences between accounting profit and taxable income. Deferred tax assets represent future tax deductions when accounting losses exceed taxable deductions, whereas deferred tax liabilities denote taxable amounts in future periods due to revenue recognised for accounting before taxation. Standards such as IAS 12 require entities to determine the tax base of assets and liabilities, apply enacted tax rates, and assess the probability of realising deferred tax assets. Key tasks include identifying temporary differences, estimating future tax rates, and establishing valuation allowances for assets unlikely to be realised. Accurate taxation accounting influences reported earnings, effective tax rates and net asset values, thereby affecting investor decisions and regulatory assessments. In an era of heightened scrutiny on transparency, practitioners leverage robust modelling, scenario analysis and detailed disclosures to align financial reporting with evolving tax legislation and economic substance.
Research from Nature Portfolio
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Taxation Accounting publication trend
The graph below shows the total number of articles in taxation accounting across all publications each year (not limited to Nature Index journals).
Technical terms
Current tax expense: The tax charge for the period based on taxable profit calculated under statutory rates.
Deferred tax asset: A recognised future tax deduction arising from deductible temporary differences and carry-forward losses.
Deferred tax liability: A recognised future tax payment obligation resulting from taxable temporary differences.
Temporary difference: The gap between the carrying amount of an asset or liability in financial statements and its tax base.
Valuation allowance: A contra-account reducing deferred tax assets to the amount expected to be realised.
Effective tax rate: The ratio of total tax expense (current and deferred) to accounting profit, reflecting the overall tax burden.
References
- Financial accounting for deferred taxes: a systematic review of empirical evidence. Management Review Quarterly (2021).
- Misuse of Deferred Taxes in Portugal. Economies (2022).
- The theory of deferred taxation: Evidence of its applicability and conceptual framework. Vestnik Tomskogo gosudarstvennogo universiteta Ekonomika (2022).
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