The Deferred Tax And Liability Essay

951 Words Nov 23rd, 2016 4 Pages
As taxes are one of the largest expenses on both Adidas and Under Armour’s financials, it is important to identify the differences in both reporting and application of the deferred asset and liability that are created.
Income tax expense for Adidas and Under Armour were 353M Euro and 154M Dollars (34% and 40% of EBIT respectively). This large expense and its corresponding balance sheet complements have a major impact on key ratios.
One major difference is the classification of the Deferred Tax Asset and Liability. Under US GAAP, these are classed as either current or non-current while IFRS simply considers all Deferred Tax items as non-current. What this does is skew key ratios that rely solely on current asset totals as a factor in the calculation. For example, if Under Armour were to adopt the IFRS method of Deferred Tax classification for DTA, the company’s current ratio for 2014 (2015 has no current portion of Deferred Taxes so prior year used to point out the issue) would drop 5%. This number could become more or less when looking year over year, but for the potential investor this should be something to consider. This works the same for the Deferred Tax Liability and its effect on ratios such as the quick and cash ratio to measure liquidity.
Another difference to note is the use of the valuation allowance, which is not permitted under IFRS. Under Armour in 2015 have a valuation allowance of -24M Dollars (roughly 9M (increase from 2014), which accounted for…

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