The Modifiability of Deferred Taxes and their Place in the Balance Sheet and Capital Equations

In the second half of the XX century, the accounting scientific community accepted as an assumption that deferred taxes qualify as assets and liabilities, because the inflow or outflow of economic benefits depends on them, but there was no clear theoretical argumentation of how exactly tax effects affect the financial position of the organization. In this regard, the author of this study aims to theoretically justify the property of their modifiability from the position of reflection of economic benefits. The work is of theoretical nature. Standard scientific methods are used: the dialectical method of scientific cognition, the method of collecting theoretical and regulatory-legal information, the method of formalization, as well as analysis, synthesis, observation, and comparison. In the course of the study, it is proved that this property of modifiability is manifested in the implicit economic benefits that do not have a direct relationship with the cash flow. Since as the value of deferred taxes is recovered, the registration of legal income tax liabilities takes place, and it is they that have a direct connection with tax payments, it is recognized that the object “deferred taxes” exists solely on the basis of the boundaries of accounting postulates (principles), and the property of modifiability allows to fix the effect of future decrease (increase) of current income tax liabilities relative to the assessment at fair value. The author of the article shows that deferred taxes are not consistent with the concepts of “reserve”, “valuation allowance” and “contingent liability (contingent asset)”, so it is necessary to revise the existing approaches to the interpretation of assets and liabilities taking into account the property of modifiability. The results of the paper are useful for researchers in the field of inter-period income tax allocation, as well as for all interested parties who study the essence of deferred taxes.

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