E.10 Subsequent Changes in Deferred Taxes That Were Originally Charged or Credited to Equity (Backwards Tracing)
Under U.S. GAAP, subsequent-period changes in deferred tax items
that were originally charged or credited to shareholders’ equity or OCI are
allocated to the income tax provision related to continuing operations (i.e., no
backwards tracing). For example, the effect of a change in the subsequent tax rate
on recorded deferred tax would be recognized in continuing operations even if the
tax expense or benefit was originally recorded in OCI. (Note that ASC 740-10-45-20
and ASC 740-20-45-11(c)–(f) provide limited exceptions to the above guidance.) See
Section 6.2.4 for
additional guidance.
Under IFRS Accounting Standards, however, subsequent-period changes
in deferred taxes that were originally charged or credited to shareholders’ equity
are also allocated to shareholders’ equity. Paragraph 61A of IAS 12 states, in part,
“Current tax and deferred tax shall be recognised outside profit or loss if the tax
relates to items that are recognised, in the same or a different period, outside
profit or loss.” For example, a deferred tax item originally recognized by a charge
or credit to shareholders’ equity may change either because of changes in
assessments of recovery of DTAs or changes in tax rates, laws, or other measurement
attributes. In a manner consistent with the original treatment, IFRS Accounting
Standards require that the resulting subsequent change in deferred taxes be charged
or credited directly to equity as well.