The Excess Tax Depreciation Component Of Deferred Taxes: Assumptions Versus Evidence

Abstract

Several recent studies have examined the behavior of deferred taxes in an attempt to determine their proper balance sheet classification and likely information content.  A key assumption underlying these studies, and most previous studies in the area, is that deferred taxes results principally from depreciation timing differences.  This article, which is based on a detailed examination of Form 10-K reports for 122 sample companies over 15 years, demonstrates that this assumption is not currently valid.  Results indicate that timing differences other than depreciation have a substantial impact on deferred tax behavior.