ASPE Section 3465
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Income Taxes
Income Taxes is part of the Accounting Standards for Private Enterprises (ASPE).
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Conceptual Framework Linkage
A genuine choice between two fundamentally different income tax accounting models
ASPE Section 3465 governs the ACCOUNTING for INCOME taxes – AND, GENUINELY distinctively, OFFERS an ENTERPRISE a CHOICE between TWO entirely DIFFERENT measurement PARADIGMS: the TAXES payable METHOD (RECOGNIZING no DEFERRED tax WHATSOEVER) or the FUTURE income TAXES method (a COMPREHENSIVE, balance-SHEET deferred TAX approach). THIS choice HAS no EQUIVALENT anywhere ELSE in THIS entire POSTER library (Section 3).
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Scope
Income taxes payable and, where elected, deferred tax
This Section applies TO the ACCOUNTING for CURRENT and (WHERE elected) DEFERRED income TAXES arising FROM an ENTERPRISE'S own OPERATIONS.
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THE CENTRAL CHOICE – Two Entirely Different Paradigms
Not a choice within a shared framework – a choice OF framework
MethodDescription
Taxes Payable MethodRECOGNIZES tax EXPENSE simply EQUAL to the AMOUNT of INCOME taxes PAYABLE (or REFUNDABLE) for the CURRENT period, based ON the enterprise'S own TAX return – NO deferred TAX assets OR liabilities are RECOGNIZED at ALL
Future Income Taxes MethodA COMPREHENSIVE, balance-SHEET, temporary-DIFFERENCE-based APPROACH – BROADLY similar TO ASC 740/IAS 12'S own DEFERRED tax MODEL, recognizing DEFERRED tax ASSETS and LIABILITIES for TEMPORARY differences BETWEEN accounting AND tax bases
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The Taxes Payable Method
Radically simpler – tax expense equals the tax return liability
UNDER the TAXES payable METHOD, INCOME tax EXPENSE for THE period simply EQUALS the AMOUNT of INCOME taxes PAYABLE (or REFUNDABLE), as DETERMINED by the ENTERPRISE'S own TAX return CALCULATION – TEMPORARY differences BETWEEN the ACCOUNTING carrying AMOUNTS of ASSETS and LIABILITIES and THEIR respective TAX bases are SIMPLY ignored, WITH no DEFERRED tax ASSET or LIABILITY ever RECOGNIZED.
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Disclosure Still Required Under the Taxes Payable Method
Visibility into unrecognized temporary differences, even without balance sheet recognition
EVEN WHERE the TAXES payable METHOD is ELECTED, an ENTERPRISE STILL discloses the NATURE and, WHERE practicable, the AMOUNT of SIGNIFICANT temporary DIFFERENCES that ARE NOT reflected WITHIN the ACCOUNTS – GIVING readers SOME visibility INTO the potential FUTURE tax CONSEQUENCES of THESE unrecognized DIFFERENCES, DESPITE the SIMPLER measurement APPROACH chosen.
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The Future Income Taxes Method
A full deferred tax balance sheet approach
UNDER the FUTURE income TAXES method, an ENTERPRISE recognizes DEFERRED tax ASSETS and LIABILITIES for ALL temporary DIFFERENCES between the ACCOUNTING carrying AMOUNTS of ASSETS and LIABILITIES and THEIR respective TAX bases – MEASURED using ENACTED, or SUBSTANTIVELY enacted, TAX rates EXPECTED to APPLY when the TEMPORARY differences REVERSE, BROADLY consistent WITH the GENERAL deferred-TAX approach ALSO used INTERNATIONALLY.
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Recognition of Deferred Tax Assets – a "More Likely Than Not" Threshold
A recognition threshold styled closer to US GAAP than IAS 12
UNDER the FUTURE income TAXES method, a DEFERRED tax ASSET is RECOGNIZED only TO the EXTENT it IS "MORE likely THAN not" to BE realized – a THRESHOLD conceptually STYLED closer TO the US GAAP ASC 740 APPROACH than to IAS 12'S OWN differently-PHRASED recognition CRITERIA, THOUGH broadly SIMILAR in SUBSTANCE.
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Why This Choice Exists
Deferred tax accounting is expensive, and often low-value, for many private enterprises
DEFERRED tax ACCOUNTING is GENUINELY complex and COSTLY to APPLY – REQUIRING ongoing TRACKING of TEMPORARY differences, TAX rate FORECASTING, and VALUATION allowance ASSESSMENTS. FOR MANY private ENTERPRISES, PARTICULARLY smaller ONES with RELATIVELY simple TAX positions, the INCREMENTAL informational VALUE of a FULL deferred TAX balance SHEET is GENUINELY limited RELATIVE to its COST – ASPE'S standard-SETTERS therefore PRESERVED the SIMPLER taxes PAYABLE method AS a GENUINE, unrestricted ALTERNATIVE, REFLECTING the SAME cost-BENEFIT philosophy UNDERLYING virtually EVERY other OPTIONAL feature we'VE documented THROUGHOUT this ENTIRE ASPE poster SERIES.
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Worked Example – the Taxes Payable Method
Simply the amount owed to the tax authority
Example: A small private company's tax expense
A small manufacturing company, electing the taxes payable method, calculates $180,000 of income tax payable for the current year based on its tax return, despite having $95,000 of unrecognized temporary differences (primarily accelerated tax depreciation) that would generate a deferred tax liability under the alternative method.
The COMPANY recognizes INCOME tax EXPENSE of EXACTLY $180,000 – MATCHING its TAX return LIABILITY precisely, WITH NO deferred TAX liability RECOGNIZED for the $95,000 of TEMPORARY differences, THOUGH THEIR nature and AMOUNT are DISCLOSED in the NOTES.
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Worked Example – the Future Income Taxes Method for the Same Facts
A materially different reported result for identical underlying economics
Example: The same company, electing the alternative method
The same company instead elects the future income taxes method, with the $95,000 of temporary differences (net) requiring recognition of a deferred tax liability, using a substantively enacted 25% tax rate.
The COMPANY recognizes a $95,000 × 25% = $23,750 DEFERRED tax LIABILITY, WITH total INCOME tax EXPENSE of $180,000 (CURRENT) + $23,750 (DEFERRED) = $203,750 – a MATERIALLY DIFFERENT reported RESULT than the $180,000 the TAXES payable METHOD produced, FOR the EXACT same UNDERLYING economic FACTS.
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Disclosure Requirements
What Section 3465 requires
Accounting policy elected (Taxes Payable Method or Future Income Taxes Method)Under the Taxes Payable Method: nature and amount of significant unrecognized temporary differencesUnder the Future Income Taxes Method: components of deferred tax assets and liabilities, and any valuation allowance
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Critical Judgments & Estimates
Where judgment matters most
SIGNIFICANT JUDGMENTS
Which method genuinely best serves the enterprise's users, weighing cost against informational valueWhether a deferred tax asset is more likely than not to be realized, under the Future Income Taxes Method
SIGNIFICANT ESTIMATES
Substantively enacted tax rates expected to apply when temporary differences reverse
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Relationship to IAS 12
Comparison – ASPE Section 3465 vs IAS 12
FeatureASPE Section 3465IAS 12
Deferred tax opt-outAVAILABLE – Taxes Payable MethodNOT available – deferred tax mandatory
Future Income Taxes Method mechanics, where electedBroadly convergedBroadly converged
ARGUABLY the SINGLE most FUNDAMENTAL divergence THIS entire POSTER library HAS documented – NOT a difference IN how a SHARED concept IS applied, but a GENUINE choice BETWEEN two ENTIRELY different MEASUREMENT paradigms FOR the SAME underlying ECONOMIC phenomenon.
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Statement Mapping
Where every income tax event lands
EventStatement(s) affectedNotes
Current tax expenseBS ISRecognized under both methods
Deferred tax asset/liabilityBS ISONLY recognized under the Future Income Taxes Method
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Related Standards
Cross-reference map
SectionConnection
Section 1505Disclosure of Accounting Policies – requires disclosure of which income tax method has been elected
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Quick-Reference Glossary
Taxes Payable Method
An income tax accounting policy recognizing tax expense simply equal to the current period's tax return liability, with no deferred tax recognized.
Future Income Taxes Method
A comprehensive, balance-sheet deferred tax accounting policy recognizing deferred tax assets and liabilities for temporary differences between accounting and tax bases.
Financial statement key (ASPE terminology)
BS Balance Sheet
IS Income Statement
SRE Statement of Retained Earnings / Statement of Changes in Equity
SCF Cash Flow Statement