QUESTION What Are Deferred Income Tax Assetsliabilitie

Q: While probing annual reports and 10-K forms, I found these items in the balance sheet. Exactly what are deferred income tax assets and deferred income tax liabilities? Do they have anything to do with unrealized gains and losses on assets? Should I pay attention to deferred income taxes? Any other thoughts?

A: -Most companies use aggressive accounting for tax purposes, i.e. accelerated depreciation. This reduces tax liability. For financial reporting purposes they tend to be more conservative. The different methods of account for taxes and for financial reporting thus creates an accounting difference in the tax liability which gives rise to the use of deferred taxation -The idea of deferred taxes is to give you some idea of what the firm will have to pay in the future for

taxes as a result of the tax-advantaged treatment they are receiving this year. If this seems puzzling, thats because it is. Deferred taxes is the most complex accounting issue you will have to deal with (at least in most industries). If you want to understand it better, grab a good accounting text and work through the examples. If you want to complain, the authors are at the Financial Accounting Standards Board, and of course the Securities and Exchange Commission is very much involved with disclosure issues. Write them too. The deferred tax accounting standard has been re-written twice in recent years because of concerns like yours. But it is a difficult issue to simplify. .