- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 24. Income Taxes
- Subject 5. Recognition and Measurement of Current and Deferred Tax
CFA Practice Question
Which of the following statements concerning valuation allowance for deferred tax assets is FALSE?
A. Valuation allowance is not a discretionary tool.
B. Realization of a valuation allowance in the future has income and cash flow implications.
C. A valuation allowance need not be taken even if the tax rate changes, as they may not be reversible in the future.
Explanation: The timing and amount of a valuation allowance is discretionary and management may use it to manipulate earnings.
User Contributed Comments 2
| User | Comment |
|---|---|
| achu | Reducing the DTA indeed will lower current period reported net income! |
| berylzheng | Valuation allowance is a discretionary tool to manage earnings. |