International Financial Statement Analysis, 3rd Edition

CHAPTER 13

INCOME TAXES

Elbie Antonites, CFA

Michael A. Broihahn, CFA

LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:

• describe the differences between accounting profit and taxable income, and define key terms, including deferred tax assets, deferred tax liabilities, valuation allowance, taxes payable, and income tax expense;
• explain how deferred tax liabilities and assets are created and the factors that determine how a company's deferred tax liabilities and assets should be treated for the purposes of financial analysis;
• calculate the tax base of a company's assets and liabilities;
• calculate income tax expense, income taxes payable, deferred tax assets, and deferred tax liabilities, and calculate and interpret the adjustment to the financial statements related to a change in the income tax rate;
• evaluate the impact of tax rate changes on a company's financial statements and ratios;
• distinguish between temporary and permanent differences in pre-tax accounting income and taxable income;
• describe the valuation allowance for deferred tax assets—when it is required and what impact it has on financial statements;
• compare a company's deferred tax items;
• analyze disclosures relating to deferred tax items and the effective tax rate reconciliation, and explain how information included in these disclosures affects a company's financial statements and financial ratios;
• identify the key provisions of and differences between income tax accounting under ...