Deferred Tax Accounting under SFAS No. 109: An Empirical Investigation of Its Incremental Value-Relevance Relative to APB No. 11

This study investigates whether the net deferred tax liabilities disclosed under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109) provides additional value-relevant information over the disclosure required by Accounting Principles Board Opinion No. 11, Accounting for Income Taxes (APB No. 11). Evidence suggests that SFAS No. 109 data represent value-relevant information above and beyond APB No. 11. Additionally, evidence indicates that the changes made by SFAS No. 109-the separate recognition of deferred tax assets, the creation of valuation allowances for deferred tax assets and the adjustment of deferred tax accounts for enacted tax rate changes-each provide value-relevant firm data. These results suggest that SFAS No. 109 increased the value-relevance of deferred tax amounts in financial statements.