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FASB Asset/liability Approach to record taxes; is it valid?

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Please provide your professional opinion on the following:

Do you think that the asset/liability approach used by the FASB to record taxes is valid? Why or why not.

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Solution Summary

In this 440 word solution, the response explains the change that occurred with FASB 109 in the approach to computing and recording deferred income tax. Four concepts are discussed and explained with examples.

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Yes, I agree that it is a more valid approach for the following reasons:

1. Whereas the old system was probably more concerned with the amounts reportable on the income statement, the new approach, as outlined in FASB 109, concentrates more on the balance sheet.

2. The new concept more closely matches GAAP in terms of valuing assets and liabilities on the balance sheet. For example, deferred tax assets and liabilities are more carefully categorized as current or non-current much as other balance sheet items are. The concept is that current will turn to cash or use cash within one year. To properly categorize deferred tax assets and liabilities one must assess the realistic possibility ...

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