What should be done when a tax rate or tax rule changes?
When a new tax rate or tax rule changes ( is enacted) or substantively enacted, not only should the new rate (rule) be applied in calculating the current tax liability and adjustments to deferred tax accounts during the year, but they should also be applied to the deferred amounts recognized in prior years.
A journal adjustment must be passed to increase or reduce the carrying amounts of deferred tax assets and liabilities to reflect the new value of future taxable or deductible amounts. IAS 12, paragraph 60, requires that the net amount arising from the restatement of deferred tax balances be recognized in the income statement except to the extent that the deferred tax amounts relate to items previously recognized outside profit or loss.
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When a tax rate or tax rule changes
Failing to adjust for the changes will result in deferred tax assets and liabilities being overstated or understated with respect to the reversal of tax-effects.
